The End of Month Rally/Effect In Stocks (S&P 500 Seasonality)

Last Updated on June 15, 2021 by Oddmund Groette

A well-known “fact” is the rally in stocks at the end of the month and the first day of the next month. It’s a lot about it on the web, but as far as I can see no actual hard numbers and strategies.

Do stocks go up at the end of the month? In this article, we make some backtests and conclude positively: there is a significant end of month rally in stocks. Our end of month trading strategy in the S&P 500 shows abnormal returns compared to other days of the month. 

The effect is often referred to as the “turn of the month effect”.

In a previous article we backtested the performance of the S&P 500 for each calendar day of the month:

The best days tend to cluster around the end and the beginning of each month.

Is it possible to make a profitable trading strategy in stocks at the end of month effect?

The end of month rally/anomaly/seasonality in the S&P 500 (SPY)

Let’s make a backtest to verify or falsify the end of month effect. We test by using free data from Yahoo!finance and use the ticker ^gspc. This ticker is the cash price of the S&P 500 index and doesn’t include reinvested dividends.

Our end of month stock trading strategy:

At the close of the fifth last trading day of the month, we buy the S&P 500. We hold the S&P 500 for seven trading days. Thus, we sell on the third trading day of the new month. In other words, we own the S&P 500 approximately 1/3 of a month’s trading days.

You can trade this strategy either by buying the ETF with the ticker code SPY, or you can buy S&P 500 futures contracts (the original contract, the e-mini, or the e-micro).

The equity curve from 1960 until the spring of 2021 looks like this (compounded – starting with 100 000 in 1960):

CAGR is 7.2% (buy and hold is 7.1), time spent in the market is 33%, the win ratio is 62%, the average winner is 2.1, the average loser is 1.84%, the profit factor is 2, and the max drawdown is 27%.

Just by being invested in the stock market 33% of the time you get the same return as buy and hold with just half the drawdown! Of the 61 years since the start of the strategy, we have had just 8 losing years, the worst being 2002 with a 15% loss. Just three years had losses of more than 10%.

We think these are pretty awesome numbers for such a simple trading strategy. The most remarkable is its consistency.

However, slippage and commissions are not included.

Get the code for this strategy plus 60+ other free strategies published on this website:

 

Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.