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September 20, 2004

Stock Market Seasonality

Lehman Brothers had some interesting research out this morning regarding the seasonality of stock prices as it relates to the third and fourth quarters and election years. This research supports our view posted earlier today of near-term caution followed by year end strength....

Quoting Lehman Brothers:

US equity returns show clear seasonality. Since 1965 Q3 has been the worst average performer (-1.6%) while Q4 has been the best (+3.9%). Year-end rallies have also been relatively consistent. There have been 3 times as many up years than down quarters in Q4. In recent years the trend has become more pronounced, Q4 returns have exceeded average Q1-Q3 returns in the last 5 out of 6 years. As possible causes of seasonality, earnings and fund flow trends offer little reason to think that 2004 will not see similar Q4 strength. Moreover, since 1900, US election years have on average boosted H2 performance strongly.

This statistical data is being fairly widely discussed on the Street, which means it may already be reflected in stock prices. However, we believe weakness in the remainder of the third quarter and early fourth quarter is probable as earnings are likely to disappoint even lowered expectations currently in place.

Posted by Steve Birenberg at September 20, 2004 06:01 PM in Market