The Labor Day Holiday Effect In Trading (Backtest And Strategy)
Last Updated on April 18, 2023
The Labor Day holiday is one of the federal holidays observed in the US. But does it affect the US financial markets?
The US financial markets do not open on the Labor Day holiday, which is the first Monday in September. No trading takes place on any of the U.S. stock exchanges. Backtests conclude that there is no seasonality effect around Labor Day.
The Labor Day holiday
Labor Day is an annual celebration in the United States and Canada to honor workers for their social and economic contributions to society. It is observed on the first Monday in September. In many other countries, May Day serves the same purpose.
For many Americans, the Labor Day weekend also symbolizes the end of summer, and it is often celebrated with parties, street parades, and athletic events.
Why do we celebrate it?
The Labor Day holiday pays tribute to the contributions and achievements of American workers. It was created by labor activists in the late 19th century when they pushed for a federal holiday to honor and recognize the many contributions workers have made to America’s strength, prosperity, and well-being.
When did we start celebrating it?
Labor Day was made a federal holiday in 1894. But before it was a federal holiday, labor activists and individual states have been observing the day in honor of workers. Municipal ordinances were passed in 1885 and 1886, and subsequently, a movement developed to secure state legislation. Oregon was the first to pass a law recognizing Labor Day, on February 21, 1887, and many other states followed suit. On June 28, 1894, Congress passed an act making the first Monday in September of each year a legal holiday to honor workers.
Is it a nontrading day?
Yes, it is a nontrading day: the U.S. financial markets always close for the Labor Day holiday. No trading takes place on the New York Stock Exchange or Nasdaq until those exchanges reopen on the following Tuesday.
The Labor Day holiday effect (backtest)
Labor Day is always on the first Monday of September. What has the performance been around this day?
Let’s the following strategy:
- We buy the S&P 500 at the close of the second last trading day of August. For example, we buy at the close on the 30th of August so we are long on the open of the last trading day of August.
- We sell at the close on the first Tuesday of September (after the first Monday).
The equity curve in Amibroker looks like this (100 000 compounded since the start):
There are 28 trades, the average gain is 0.11%, the win ratio is 57%, the profit factor is 1.14, and the max drawdown is 5%.
The result is pretty poor.
We tried both buying earlier and later but the results seem pretty random.
Keep in mind that September is historically the worst month of the year:
Holiday effects in the stock market
We have covered all the US stock market holiday effects in trading. To sum up, we have the following other holiday effects in the US markets:
- The Martin Luther King Jr. Day holiday effect in trading (Backtest and strategy)
- George Washington Day/President’s Day holiday effect in trading (Backtest and strategy)
- The Easter Holiday effect in trading (Holy Thursday – best day of the year for stocks? Backtests and strategies)
- The Memorial Day Holiday Effect In Trading (Backtest And Strategy)
- The 4th of July Holiday Effect In Trading (Independence Day Effect – Backtest and strategy)
- The Thanksgiving and Black Friday effect in the stock market (Backtests and strategies)
- The End Of The Year Rally In Stocks (Santa Claus Rally/Effect Strategy backtests and strategies)