What Is the Best Month for Stocks?

What Is the Best Month for Stocks?

April is the best month of the year for the stock market, based on S&P 500 data since 1980. The S&P 500 rises 2.0% in April on average, higher than any month. The S&P 500 has also been up in 31 of the 42 last Aprils, or 74% of the time. That is the highest percentage of all months. Wilshire 5000 data also supports this notion.

April also has another unique distinction - the smallest maximum loss. In April 2002, the S&P 500 fell -6.1%, so the worst April was better than the worst of all other months. 

And What Is the Worst Month for Stocks?

September is the worst month for stocks, with a -0.7% average decline since 1980. That makes September the only month of the year that is negative on average. The S&P 500 has risen in just 20 of the last 42 Septembers, so it was up only 48% of the time. Again, that is the worst performance among all months.

Those are the simple answers. Now let’s complicate things.

The Challenge With Monthly Return Data

Analyzing monthly stock market returns may seem like a simple Excel exercise.

However, it is fraught with challenges, like deciding how far to go back, especially since index composition changes so much over time.

There's also the question of whether this data is even valuable. A monthly return is simply the percentage change between one month's closing price and the next. Are you making buys and sells exactly on the close of each month, with no activity in between?

There are plenty of other more important factors affecting your returns, including:

• Whether you are long or short
• Your mix of asset classes like stocks, bonds, crypto currencies, and other assets
• The individual stocks, ETFs, and cryptos you own
• The overall market environment
• Your holding time
• When you choose to buy or sell
• Taxes and trading commissions

Nonetheless, let's take a deep dive and see what we can learn from average monthly stock market return data.

The Best and Worst Months for the Nasdaq Composite, Wilshire 5000, and Russell 2000.

The biggest problem when asking “what is the best month for stocks?” is that you need to ask a second question: "which stocks are you talking about?"

So to determine whether April is really the best month for stocks, we looked at three other major indices: the Wilshire 5000, Nasdaq Composite, and Russell 2000.

Next, let’s look at the Wilshire 5000, the broadest index of US companies.

The Wilshire's, best month is April with an average return of +1.9%, and it's worst month is September.

The Nasdaq's the best month is actually January with an average +2.3% return, though the worst month is September, just like the S&P and Wilshire.

For the Russell 2000, the best month is December, with an average return of +2.6%. And the worst is August with an average return of -0.3%.

You can see all the numbers in this table. The best months are outlined in green with the worst months in red.

Is November the Best Month for Stocks?

Many investors argue that November is the best month for stocks.

But the Wilshire 5000 is the broadest measure of the US market, and it points to April as being the strongest month. 

But arguing over "best" may be silly because the data suggests that different types of stocks do better at different times of year.

And we're not talking about huge differences anyway.

Why Not Focus on the Median?

If we go by median monthly returns, November actually becomes the best month for stocks. 

But average returns make more sense because investing returns are heavily impacted by statistical outliers, which would be excluded when using the median.

Now let’s go through some of the more interesting individual findings.

October Stock Market Returns - The Weird Thing We Noticed

The S&P 500 was positive in 27 of the last 42 Octobers, with an average return of +1.6%.

The two worst months for the S&P 500 since 1980 were:

• -21.8% in October 1987, when we had the Black Monday crash
• -16.9% in October 2008 during the housing meltdown

Excluding these months, the S&P 500 has been up on average of 2.2% each October. So outside of generational disasters, October is generally an outstanding month.

And that brings us to another point regarding monthly returns.

There is a great deal of chance involved, and one or two generational outliers can dramatically impact the numbers. 

Does One Month Mean Anything for the Next?

The stock market on average returns +0.84% per month.

After an up month, the market returns an average of +0.86%.

And after a down month, the market is up an average of +0.82%.

So one month doesn’t seem to mean much for the next, with one exception that we found:

What About the January Effect?

December may have a small impact on January.

After positive Decembers in the S&P 500, January has been up 74% of the time with an average return of +1.2%.

That's a slight increase from the overall January average return of +1.0%.

So Do Monthly Returns Even Mean Anything?

It seems quite difficult to make smart investing decisions based upon the month of the year. 

The difference between the best average month of the year (April at +2.0%) and the worst (September at -0.7%) is a mere 2.7 percentage points.

And let’s talk about September for a second. The average S&P 500 return in September is -0.7%. The average return in October is +1.2%. So on a compounded basis, on average, October's gain makes up for September's loss.

So how bad is September, really?

What Do You Think?

Does analyzing monthly returns even mean anything?