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Halloween Effect’s Ridiculous Prediction For November

Insider Monkey, your source for free insider trading data, doesn’t like using historical results without any theoretical basis. Calendar effects are a good example of this. In September, we published an article titled “September Effect Debunked! Next in Line January Effect” arguing a similar point. This year, the stock market had one of its best September performances since the beginning of World War II, contrary to the September Effect. October is one of the lousiest months in terms of historical returns. But this October, the stock market performance was great.

Historically, November is one of the best months. It’s even better than January. The stock market returned an average 1.41% in the Novembers between 1926 and 2009. If history is any guidance, then you should expect a nearly 1.5% positive performance this November. But wait – this isn’t just an ordinary November. We’re coming off a 10%+ performance during the previous two months. So let’s take a moment and dig through historical returns to calculate November returns in similar market conditions.

Between 1926 and 2009, there were 5 different years where the stock market went up by more than 10% during the September-October period. In 1935, September-October performance was 10.04% and the stock market went up by an additional 5.2% during November. In 1939, September-October stock market performance was 16.2%, but the stock market declined by 4.1% in November. In November 1942, the stock market had a small 0.4% decline, following a 10.2% increase during the previous two months. Forty years later, the stock market once again went up by more than 10% in September-October and this time, November performance was an increase of 4.6%. Finally in 1998, September-October’s 14.8% performance was followed by a 6.2% increase in November. God bless Greenspan and his monetary policies!

Basically, when we had double digit returns during the September-October period, November returns were 2.3% on average. The Halloween Effect tells us that since the November 1998 situation is similar to our current situation, we should even expect a 5% return this November. But we at Insider Monkey disagree. Using historical results without any theoretical basis is useless.

We predict that the stock market is going to disappoint the calendar effect investors in November.