Why the Stock Market Looks Bullish for Autumn

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Stock prices usually reflect underlying value. But stocks can also be affected by things like summer vacations among hedge fund managers, or by late-December window-dressing by mutual-fund managers who want to have the hot performers in their portfolio at year's end. Brian Belski, chief investment strategist at Oppenheimer, tells TIME's John Curran why these seasonal tea leaves are now bullish.

What are seasonal stock-market patterns pointing toward?
Right now investors have a tremendous amount of doubt with respect to the stock market. With the economy just coming out of recession and stocks up more than 40% from the lows, people are thinking, 'It's gotta correct, it's gotta correct.' But historically, it doesn't have to correct, and that's what these seasonal patterns show — following big runs in the summertime, the stock market does not, on average, turn negative in the fall.

But traditionally September is known for being a lousy month for stocks, right?
We've experienced in the last 25 to 30 years pretty sizable corrections in the fall, whether it's September or October. We saw it in 1929, but more recently in 1987, and in '97 and '98 as well. Even when there's not a big sell-off, it's not a good month. In fact, since 1942, September has been the most negative month in the stock-market year, exhibiting on average a 0.5% negative return. That's the seasonal pattern most people think of when heading into the fall. But there have been noticeable changes in summer seasonal patterns since 1994.

How so?
The summer months since 1994 have tended to show weakening performance as the summer wears on. We believe this has to do with an increasing trend toward longer summer vacations among the Wall Street set. Also, we are a global market today, and lengthy summer vacations are popular in many corners of the world.

But this summer the stock market has rallied.
Precisely, and that goes against the seasonal pattern that has been in effect. If you go back and look at other times when that has happened in the last 15 years — a positive stock market during the summer — the results show that the stock market also has a positive September and keeps strengthening throughout the rest of the year.

So there's good seasonal karma right through December?
In this seasonal scenario, December actually turns in the strongest performance, on average. There's a bit of seasonality to that too, since in a rising market you will typically see mutual-fund managers rush to add hot stocks to their portfolio at the end of the year so it shows up in their portfolio statements. There's much more performance pressure on money managers today than there used to be.