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The Mysterious Decline of the Stock Market



As the stock market takes a nosedive, speculations about the reasons behind this decline abound. Some attribute it to the fear of stagflation, while others blame the chaos on Capitol Hill or turmoil in the Middle East. However, there is a more peculiar and yet undeniable explanation for the lackluster performance of stocks – it’s October!

The Winter Advantage

Throughout history, it seems that Wall Street has experienced almost all of its gains during the winter months, specifically from November 1 to April 30. Surprisingly, the same pattern is observed in stock markets worldwide. Conversely, the “summer months,” spanning from May 1 to Halloween, have typically yielded disappointing results.

According to researchers Ben Jacobsen at Tilburg University and Cherry Yi Zhang at Nottingham University’s Business School in China, financial data from 114 different countries over centuries consistently show that stock-market returns are on average 4 percentage points higher from November to April compared to May to October. This intriguing phenomenon is commonly referred to as the “Halloween Effect.”

In their extensive study, which dates back to the London stock market in 1693, Jacobsen and Zhang discovered an even more astonishing fact: in 65 countries with comprehensive data on both stock market performance and short-term interest rates, selling stocks on May 1 and depositing the funds in a bank account would have resulted in better returns than keeping them invested until the end of October (excluding fees and taxes, of course).

Their findings lead to a remarkable conclusion – with the exception of Mauritius, where positive excess returns were observed during summer – the “Sell in May” strategy seems to hold true across the globe.


As we navigate the perplexing world of financial markets, it becomes clear that certain patterns defy explanation. The October decline and subsequent winter rally remain a fascinating anomaly that challenges conventional wisdom. Whether it’s the fear of stagflation, political chaos, or global turmoil, one cannot ignore the uncanny consistency of the Halloween Effect. Undoubtedly, more research is needed to unravel this enigma.

The Market’s Roller Coaster Ride

As we approach the halfway point of the year, the stock market is experiencing a rather turbulent period. The Dow Jones Industrial Average (DJIA) and the Russell 2000 (RUT) index have declined since the end of April. Even the MSCI EAFE, an international stock index, has taken a hit, dropping approximately 6%. The only silver lining can be found in Japan’s Nikkei index, which has seen a slight increase due to a weakened yen.

While the S&P 500 maintains a small gain, it’s important to note that this is primarily attributed to the impressive performance of a few tech giants during the early summer. In reality, the average stock within the S&P 500 has declined by about 2.5% since April’s end. Contrastingly, Treasury bills with minimal risk have yielded a return of over 2% during the same period.

Surprisingly, over the past few months, the Mauritius stock market has defied expectations by showing a remarkable growth of 12%, according to MSCI.

It’s worth mentioning that every year, as we approach Halloween or the infamous “sell in May” phenomenon, there are two undeniable thoughts that come to mind.

Firstly, upon reviewing this data each spring, the temptation arises to sell all personal stocks at the end of April—a notion I find utterly absurd. Admittedly, I’m usually convinced otherwise by someone with superior knowledge on Wall Street. However, more often than not, I end up regretting my decision.

Does this mean we should expect a market rally? It’s impossible to say for certain. It would be foolish if it were that simple. However, the underlying principle of the Halloween effect suggests that now may actually be the ideal time to invest in stocks. History has shown us that the next six months are typically favorable for generating profits. And if history fails to provide any guidance, then perhaps we are all in peril regardless.

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