Markets don’t repeat themselves - but they often rhyme. Does seasonality in trading exist?
In much of the Northern Hemisphere, summer is giving way to fall, whilst in the South, winter is yielding to spring. Climate change aside, it’s a pattern we all know, but does seasonality exist in financial markets as well? This is a question that partners of Scope Markets have frequently asked their relationship managers, so we spoke to Fraser Nelson , our Global Head of Business Development, to get his take on whether there’s any merit in this argument.
There are a number of seasonal anecdotes that have been used to explain market movements over the years, whether that was the correlation of gold prices to the Indian wedding season or petrol prices spiking over the summer as the US population took off on driving tours in their gas-guzzling cars. Owing to a range of underlying factors, some of these patterns now seem to have been discounted but we have taken the time to crunch the numbers on six key assets looking back over the last 20 years.
Our analysis looked at one month performance on Euro/Dollar, Dollar/Yen, Gold, WTI Crude, the S&P 500 and the DAX between 2005 and 2024. They are all instruments that we know are commonly used both by Scope Markets clients and the wider trading community.
The stand-out in terms of looking for a pattern was arguably equity indices, with both the S&P and the DAX outperforming on average in November, with each seeing average gains of 2.6% during the month. Equally, on both assets, August proved on average to be the worst month to invest, and it’s worth noting that historical talk of a Santa rally where equities almost consistently rose in the last few days of the year looks increasingly difficult to substantiate using the most recent data.
As for oil, the driving season myth appears to be well and truly busted, whether that’s down to cheaper air travel, more fuel-efficient cars or indeed other factors. However there’s clear seasonality noted for the asset in April, which proved to be the strongest performing month on average for crude. Some years - notably 2015 & 2016 - saw fundamental production shifts impacting prices during the month, but April always sees the influential annual Norwegian oil auctions for closely correlated Brent Crude, along with summer buying of forward oil contracts. We will take a deeper dive into situations like this in future updates.
Looking at gold, again that was eye-catching. Whilst I’m mindful of the fact that causation does not equal correlation, and also the routes for hedging against price volatility are far more accessible than they were years ago – even just by using a CFD – it was notable that the gold price tended to fare better over the October-April period, aligning well with that traditional Indian wedding season.
Finally, when it comes to major currencies, there was no meaningful pattern displayed on the pairs that we analysed. Core economic and political drivers are inevitably going to be the key drivers when it comes to FX price moves and from inspecting the data, the comparative randomness of price action seems to underline that concept. However, in some of the lesser traded “exotic” currencies, seasonality does still play a role and again we’ll return to analysis of that in due course.
Is successful trading an art or a science? It’s arguably a bit of both and at Scope Markets we’re always keen to ensure that our IB partners are well armed with the information to help them engage with their ultimate clients. As we know, traders empowered with knowledge are more active in the market and as a result, are typically easier to retain. Talk to us to find out more about our holistic approach to market education. Start your partnership today.