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What is Stock Market Seasonality?

Seasonality is when things change in data in a repeatable and predictable manner. Like summer heat and winter cold, data too, has “seasons” which repeat…

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Seasonality is when things change in data in a repeatable and predictable manner.

Like summer heat and winter cold, data too, has “seasons” which repeat itself predictably. 

There’s seasonality in most datasets, especially in the financial and economic fields. Look at any economic statistic published by the government and you’ll often see the headline figure is “seasonally adjusted,” to remove the seasonal bias. 

Before we move on with technical-speak, lets ensure that we understand seasonality in practical, common sense terms. 

Some things are extremely seasonal and predictable.

Gasoline consumption is seasonal. People tend to travel and go out more in the summer so they buy more gasoline. Save for fluke events like a global pandemic, you can bet on this happening every year.

The above graph is an average demand/price for gasoline in the US on a monthly basis over 20 years of data. As you can see, there’s a predictable rise in the summer over the 20 year period, which repeats itself almost every year.

That is seasonality–a predictable and repeatable trend in data. 

The same is true of retail sales. The holiday season is the biggest time of year for the retail industry and often this one quarter accounts for more than half of a store’s sales. This too, is highly predictable. 

Notice the predictable spikes in retail sales during the holiday season every year from 2015 to 2019. This seasonal trend occurs in recessions and healthy economies. 

In essence, seasonality is simply extracting human behavior patterns from data.

For that reason, it stands to reason that if the seasonal consumption trends of gasoline, home sales, and retail sales are all highly predictable, then perhaps people’s buying and selling of stocks has some predictability. 

And that’s true. There are real socioeconomic factors that affect people’s buying and selling of stocks which occur at regular and predictable intervals which we’ll get into in this article.

But that statement needs a million asterisks and you’ll soon see why. 

The Problem of Seasonality in the Stock Market

While, for instance, gasoline consumption is predictable, that doesn’t mean the future price of gasoline is predictable. So many factors outside of seasonality affect the price of gas that simply betting on seasonality might be profitable, it’ll be very noisy.

Furthermore, the true problem of betting on seasonality in any exchange-traded market comes with the very fact that we’re talking about.

When traders know about predictable seasonal patterns, they make trades based on them.

Let’s do a thought experiment.

Let’s say that gasoline was $1/gallon all year, except that during the summer season, the price goes up $2/gallon. This happens every single year in the same predictable pattern.

Smart traders would begin to take advantage of this by buying the day before summer starts. Their anticipatory buying would slightly push up the price the day before summer starts. So smarter traders would start buying two days before to front-run the price rising.

This would be an iterative process until there was no ability to front-run the summer effect and the price reflected this phenomenon all-year-round, adjusted for the time value of money obviously.

This is what people mean when they say “priced-in.” 

It’s vital to keep in mind that any easily observable seasonality in markets will be to some degree, priced in. This doesn’t mean that you can’t profit from it, you just have to assess how priced in the effect is, and if the risk/reward stands up. 

That all makes sense too. Any time there is a reasonably obvious way to beat the stock market (make better risk-adjusted returns than the broad market), many folks will jump on it until the edge is priced-in.

The stock market is a giant game of chess played by the smartest, richest people in the world, they take advantage of every easy edge there is. 

The Summer Effect: “Sell in May and Go Away”

One of the oldest seasonal tendencies of the stock market is the tendency for weak seasonality in the summer.

Apparently one of the first observations of this effect was a result of traders realizing that London stockbrokers would take extended holidays in the summer, leading to reduced volumes. 

Nowadays the same is true of Wall Street traders and portfolio managers spending more time and mental energy on their summer adventures in the Hamptons and New England. 

So how does the “sell in May” strategy stand up to scrutiny? The easiest way to measure this would be to look at average monthly returns in the S&P 500 for each month of the year: 

As you can see there’s a very observable seasonal effect of summer weakness in the stock market. 

A very simple way to implement this strategy would be to hold stocks from October to April, and sell them in May. This approach has some problems as spending roughly half of the year out of the market could mean that you miss the strongest rallies.

After all, summer weakness is not a rule, it’s simply a statistical tendency. Any given summer in the stock market could be extremely strong, like summer 2020 in tech stocks for example: 

Furthermore, the S&P 500 has, on average, positive returns even during the summer (just weaker than the rest of the year), so you’re missing out on gains by being out of the market. 

The Santa Claus Rally

The Santa Claus Rally is like an annual Christmas gift to the stock market. It refers to the seasonal outperformance of the stock market during the holiday season.

There’s no settled timeframe to define the Santa Claus Rally.

Some start the holiday season the week before Thanksgiving and end the day after New Year’s Day, while others use a much smaller timeframe of the trading days following Christmas Day, ending the day after New Year’s Day. 

There’s no clear-cut reason to explain this seasonal effect, although some theories pertain to end-of-year tax-related trading, or increased investing activity due to holiday bonuses/gifts. Our job isn’t to find why, but to exploit these tendencies for profit. 

This effect is quite similar to “sell in May and go away,” except it focuses solely on the winter months which are the primary source of outperformance.

Here’s a chart  showing S&P 500 seasonal strength during the holiday season from 2000 to 2020: 

The Market Holiday Effect

There’s a strange stock market tendency that leads to outperformance in the days leading to and following market holidays. These don’t have to be major holidays, either, this effect holds true for any day the market is closed, like Memorial Day or President’s Day. 

Note that a ‘market holiday’ in this context means the stock market is closed for that day. 

The trade involves buying the S&P 500 or Dow Jones Industrial Average three trading days prior to a given holiday and holding it three trading days following the holiday. 

Tax Loss Harvesting/Selling Seasonality

One of the more explainable seasonal tendencies in the stock market relates directly to human behavior.

There are real incentives in place to drive this predictable and repeatable piece of human behavior, making this strategy more robust than most in the eyes of many seasonality traders. 

It’s called tax loss harvesting. It’s the tendency for investors to sell their losing investments before the end of the calendar year to realize capital deductible capital losses, while simultaneously replacing them with similar investments. 

For example, let’s say you were betting on oil stocks and owned shares of ExxonMobil (XOM). At the end of the year, you had a $10,000 loss on your Exxon shares.

You’d love to write-off those losses against your taxable income but you’re still bullish on oil stocks. Some investors in this situation might sell Exxon to realize and thus “harvest” the deductible losses, and then replace your Exxon shares with a very similar asset, like say, Chevron (CVX). 

Note that investors cannot simply realize the $10,000 Exxon loss and then just re-buy Exxon shares, that would be considered a “wash sale” and your losses wouldn’t be eligible for deduction. This is why investors will often replace their shares of, say, Exxon, with something similar but not identical like Chevron. 

So essentially the seasonal tendency here is that weak stocks tend to get weaker in the last few weeks of the trading year, and bounce back when the new calendar year starts as investors buy back their old positions. 

Now that you understand why this structural incentive to sell weak stocks at the end of the year exists, let’s look at some simple ways to exploit it. 

One such strategy is to focus on really beaten down small caps, as these tend to represent some people’s biggest portfolio losers. An additional headwind to put in your favor is to focus on stocks with less institutional ownership, as retail investors and traders tend to tax-loss sell more indiscriminately. 

So the basic concept here is to find small-cap stocks with low institutional ownership that were really beaten down on the year. 

Bottom Line

While seasonal trading is mainstream and a well-accepted form of alpha in the commodities world, it’s still a red-headed step child in the stock market world.

The seasonality of commodities is obvious to everyone; grains have their harvest season, gasoline consumption has well-established consumption trends, and so on. It’s not so clear in the stock market. 

But it’s quite clear that seasonality does exist in the stock market, it’s just harder to find and even harder to explain.

The catch here is that when a trading advantage is more esoteric and less widely accepted, it also tends to be more profitable.

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Steps to building a more patient-centric industry

Lack of access, strict regulations, and demanding schedules have made it extremely difficult for patients to participate in
The post Steps to building…

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Lack of access, strict regulations, and demanding schedules have made it extremely difficult for patients to participate in clinical trials. A 2018 NIH survey found that patients felt clinical trial participation to be inconvenient and burdensome, and nearly half (49.0%) said it disrupted their daily routine. In 2021, a CISCRIP Perceptions and Insights Study reported more disruption to daily routines compared to previous years, citing length of visits, travel, and diagnostic tests as top burdens.

To ease this burden, the life sciences industry has been searching for ways to make clinical trials more accessible for patients and to drive participation numbers, increase participant diversity, and improve overall patient experience. For many patients, this change starts with choice.

A recent survey of clinical trial professionals found that more than two-thirds of respondents (61%) believe giving patients choice will have a positive impact on clinical research, and well over half (58%) said that their organisations plan to give patients the option to choose how they participate in clinical trials moving forward. Some examples of these choices can include video visits, phone visits, and remote monitoring.

As the industry focuses on creating a more holistic, inclusive patient experience, here are key steps to consider in order to help bridge the gap between clinical research and the patient experience.

Build a base in the community

According to the FDA’s 2020 Drug Trials Snapshot Report, only 8% of clinical trial participants are Black or African American, as compared to nearly 14% of the US population. The fact is, many minorities never learn about vital clinical trials in play, or that they’re eligible to participate. Subsequently, they are excluded, creating an evident gap in participants, and subsequently needed data on how treatments respond across different demographics of people.

Creating a broader, more inclusive patient experience starts with building a network of advocates who can help organisers meet patients where they are located and educate them about the availability and value of the trials. Initially, there needs to be a more proactive and sustained nationwide outreach effort to raise clinical trial awareness within minority communities.

It’s also important to partner with trusted people within minority communities, such as religious and government leaders that have the credibility needed to share clinical trial information to counter scepticism. If sponsors can partner with patient-advocacy groups to inform design, recruitment, follow-up, and even data collection (particularly for patient-reported outcomes), it will help to keep patients engaged longer and potentially derive higher quality data sets that can lead to better patient outcomes over the long run.

Embrace technology to expand reach

Technology – especially related to automation and the cloud – can help create a more flexible clinical trial model, thereby making it easier for patients to participate. Digital tools used in decentralised trials, remote enrolment tools, consent forms, wearables, and remote devices, as well as data capture, can help to expand overall access to clinical trials. For example, with remote monitoring, doctors and trial administrators can analyse all the data coming in and, if there’s a problem, they can act more quickly and respond back to the patient through a mobile device such as a smartphone.

Cloud platforms can open two-way communication channels for patients, doctors, and trial administrators to talk and share data, essentially in real-time. Some early examples of these capabilities were part of the US Centers for Disease Control and Prevention’s (CDC) v-safe program, developed by Oracle, which is used to track the effects of the COVID-19 vaccines through voluntary, scheduled survey prompts, and to remind people about boosters. Today, capabilities like this are being extended so that trial data from wearable devices and home-monitoring systems can be communicated directly to trial sites.

A new solution

One significant roadblock to clinical trial inclusion of minority groups has been location and transportation. Many potential participants lack transportation to and from clinical sites, and some trials are only held in large city hospitals, instead of smaller community hospitals that participants can sometimes access more easily. Thanks to decentralised trials and technology that collects data remotely, people from anywhere can participate.

One approach the industry has been exploring is to utilise community retail pharmacies as a central location for people to learn about and participate in clinical trials. By collaborating with pharmacy retailers, sponsors will have more opportunities for patient recruitment because they can offer patients the convenience and comfort of visiting familiar community sites.

For example, CVS and Walgreens have instituted flexible clinical trial models that combine patient insights, technology capabilities, and in-person and virtual-care options to engage broader and more diverse communities. The result is a much more expansive pool of participants and potentially much better information about populations where the drug is effective, and other populations where it might not be effective.

Keep it simple

There’s a notion that because the healthcare and life sciences industries are very complex, the systems that support them have to be equally complex. In fact, the opposite is true. Easier-to-use systems will increase participation rates, and we will have better outcomes as a result. With so many technology advancements at its disposal, the industry must find a way to bridge the divide between patient experience and clinical research. The patient journey must be a positive one, so that they will encourage others to participate.

Imagine, clinical research as an accessible care option to anyone. Technology has given us the opportunity to make this goal a reality. But as an industry, we must innovate to bring new experiences to market and improve the clinical research ecosystem for patients, healthcare professionals, sponsors, and regulators.

About the author

Katherine (Kathy) Vandebelt is global head of clinical innovation at Oracle Health Sciences. With over thirty years of experience in clinical research working in different geographies and across various TA, Kathy has worked with various organisations to advance their clinical operations and business processes to a better operating model. She believes patients are the most important constituent in clinical development and provide the necessary information to assess the safety and efficacy of new medicines. She strives to introduce new experiences and make the clinical research ecosystem better for patients, healthcare professionals, sponsors, and regulators using the power of technology.

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Meta ‘powering through’ with Metaverse plans despite doubts — Zuckerberg

Billions of dollars have been poured into Meta’s virtual world with little return on investment, but CEO Mark Zuckerberg says he is holding fast.

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Billions of dollars have been poured into Meta’s virtual world with little return on investment, but CEO Mark Zuckerberg says he is holding fast.

Meta CEO Mark Zuckerberg is still hopeful about the company’s Metaverse plans regardless of the billions of dollars it’s sucking up from the company, claiming “someone has to build that.”

Appearing remotely for an interview at the Nov. 30 DealBook Summit in New York, Zuckerberg was asked his thoughts on whether the tech giants’ Metaverse play was still viable given its cost and the doubts cast over the platform, answering:

“I think things look very different on a ten-year time horizon than the zone that we're in for the next few years [...] I'm still completely optimistic about all the things that we've been optimistic about.”

He added part of “seeing things through” in the longer term was “powering through” the doubts held about its ambitions.

Meta's latest earnings, released on Oct. 26, revealed the largest-ever quarterly loss in its metaverse-building arm Reality Labs dating back to the fourth quarter of 2020. Zuckerberg’s virtual reality has cost $9.44 billion in 2022, closing in on the over $10 billion in losses recorded for 2021.

On the earnings call at the time Zuckerberg was unfazed by the cost, calling its metaverse the “next computing platform.” He doubled down on this claim at DealBook:

“We're not going to be here in the 2030s communicating and using computing devices that are exactly the same as what we have today, and someone has to build that and invest in it and believe in it.”

However, Zuckerberg admitted that the plans have come at a cost, Meta had to lay off 11,000 employees on Nov. 9 and the CEO said it had “planned out massive investments,” including into hardware to support its metaverse.

He said the company “thought that the economy and the business were going to go in in a certain direction” based on positive indicators relating to e-commerce businesses during the height of the COVID-19 pandemic in 2021. “Obviously it hasn't turned out that way,” Zuckerberg added.

“Our kind of operational focus over the next few years is going to be on efficiency and discipline and rigor and kind of just operating in a much tighter environment.”

Despite the apparent focus from Meta to build its metaverse, Zuckerberg claimed 80% of company investments are funneled into its flagship social media platforms and will continue that way “for quite some time.”

Investments in Reality Labs are “less than 20%” at least “until the Metaverse becomes a larger thing” he said.

Related: The metaverse is happening without Meta's permission

Of the 20% invested in Reality Labs, Zuckerberg said 40% of it goes toward its Virtual Reality (VR) headsets with the other “half or more” building what he considers “the long-term most important form factor [...] Normal-looking glasses that can put holograms in the world.”

Zuck takes bite at Apple

Zuckerberg also took a few jabs at its peer tech company Apple regarding its restrictive App Store policies, the likes of which have placed restrictions on crypto exchanges and nonfungible token (NFT) marketplaces, saying:

“I do think Apple has sort of singled themselves out as the only company that is trying to control unilaterally what apps get on a device and I don't think that's a sustainable or good place to be.”

He pointed to other computing platforms such as Windows and Android which are not as restrictive and even allow other app markets and sideloading — the use of third-party software or apps.

He added its been Meta’s commitment to allow sideloading with its existing VR units and upcoming Augmented Reality (AR) units and hoped the future Metaverse platforms were also open in such a manner.

“I do think it is it is problematic for one company to be able to control what kind of app experiences get on the device.”

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Nifty News: Porsche 911 NFTs, BMW files Web3 trademarks, Baby Shark’s NFT game and more…

BMW and Porsche have both recently ramped up their own Web3 plays, while Baby Shark is dipping into the blockchain gaming sector, but just for kids.

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BMW and Porsche have both recently ramped up their own Web3 plays, while Baby Shark is dipping into the blockchain gaming sector, but just for kids.

Porsche to launch 7,500 NFTs for use in a ‘virtual world’

German luxury car manufacturer Porsche has suggested it will be significantly ramping up its Web3 efforts after unveiling an upcoming NFT project consisting of 7,500 customizable tokenized vehicles.

In a Nov. 29 announcement, Porsche stated that the NFTs will be launched in January, and users will be able to customize various aspects of the cars in relation to performance and appearance.

The NFT art itself is being designed by designer and 3D artist Patrick Vogel, with all pieces revolving around the famous Porsche 911 model.

Notably these virtual assets will be designed in Epic Games’ Unreal Engine 5, suggesting that gaming integrations are afoot.

NFT car designs: Porsche

The company gave a sneak peek into the project at the Art Basel conference in Miami on Nov. 30. While specific details have not been mentioned, the company noted that owners will be able to use the cars in the “virtual world,” most likely meaning some sort of Metaverse.

More broadly, Porsche suggested that it is looking to significantly ramp up its exposure to Web3 moving forward, with the announcement noting that:

“Digital art is just one aspect of Porsche’s Web3 strategy. The sports car manufacturer is working to integrate the potential of blockchain technology into existing and future processes and solutions.”

Porsche previously had a hand in launching soccer-themed NFT collectibles in June 2021 as part of a project called Fanzone, but now appears to be taking the tokenization of its cars more seriously.

BMW to get Web3 trademarks

Speaking of German luxury car manufacturers, BMW has reportedly applied to trademark its logo in relation to a host of Web3 products and services.

The move was highlighted by USPTO licensed trademark attorney Mike Kondoudis, who frequently shares news regarding Web3 trademark applications in the U.S. from major companies.

BMW outlined intentions for its logo to span across collectibles such as virtual clothing, footwear, headwear and vehicles, while also indicating plans for downloadable virtual goods such as online environments and games.

Baby Shark’s Web3 arc

Content from Pinkfong’s massively popular children’s song/music video Baby Shark is set to be tokenized as part of a family-focused blockchain game.

Pinkfong reportedly penned a licensing agreement with Toekenz Collectibles to create and issue Baby Shark characters in a child safe digital environment.

Baby Shark NFT partnership: Toekenz

Toekenz Collectibles is an NFT platform targeted at children aged 12 and under, and the focus of the game is to educate kids aged five to nine “about the trading economy of digital collectibles.”

The kids will also be able to customize the NFT art to their own liking, and even participate in a Tokenz DAO where they “can exercise democratic decision-making.”

This is not Pinkfong’s first dip into NFTs, Cointelegraph previously reported that the South Korea-based company launched a series of limited editions Baby Shark NFTs in December last year.

Related: Two Bored Apes sell for $1M each: Nifty Newsletter, Nov. 23–29

Deadmau5 rolling out music metaverse

A Web3 startup co-founded by popular crypto-friendly DJ Deadmau5 (Joel Zimmerman) is gearing up for the launch of a music and gaming focused Metaverse platform.

Announced at the Art Basel event on Nov. 29, the start-up known as Pixelynx stated that the Polygon-based platform will launch this week, and kick things off with an Augmented Reality (AR) scavenger hunt set on Miami Beach.

The firm’s CEO and co-founder Inder Phull described the AR scavenger hunt as a “Rock Band meets Pokémon Go experience,” in which virtual gaming features are merged with real locations on maps via smart devices.

Users who hold Deadmau5’s Droplet NFTs will gain early access to Pixelynx’s metaverse with the platform aiming to provide a host of virtual experiences for fans of particular musicians and artists.

More Nifty News

NFTs depicting the ongoing protests in China against the country’s tough zero-tolerance COVID-19 policy have found their way to the NFT marketplace OpenSea at the tail end of November.

On Nov. 30, decentralized exchange (DEX) Uniswap announced that users can now trade NFTs on its native protocol. The function will initially feature NFT collections for sale on platforms including OpenSea, X2Y2, LooksRare, Sudoswap, Larva Labs, X2Y2, Foundation, NFT20, and NFTX.

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