Could This Be an Unhappy New Year?

Next week could be rough for the stock market…

Why? There’s an old adage on Wall Street that goes, “Sell on Rosh Hashanah and buy on Yom Kippur.”

The saying highlights the seasonal weakness that typically occurs between those two Jewish holidays. It’s similar to the “sell in May and go away” maxim we hear every year.

No, stocks don’t always decline during this time of year… But it happens often enough that there’s a saying about it.

Today marks the start of Rosh Hashanah, the Jewish New Year. It also kicks off a 10-day period known as the Days of Awe. This is a period of intense reflection for people of Jewish faith, which ends on Yom Kippur (the Day of Atonement).

The adage originated many decades ago when it was common practice for Jewish investors to sell their stocks on Rosh Hashanah so they could concentrate on their prayers without the distraction of worrying about the stock market. They would then buy back their positions after Yom Kippur when they could concentrate on the stock market again.

Nowadays, any weakness in the stock market during this time is likely more a matter of coincidence than it is the result of millions of Jewish investors dumping their portfolio holdings.

But stocks still tend to decline during this period. Last year, the S&P 500 dropped 140 points – about 4% – during this period.

Going all the way back to 1915, the Dow Jones Industrial Average has declined an average of 0.62% between Rosh Hashanah and Yom Kippur. That’s a statistically significant weakness for a 10-day period.

The declines have been much worse during periods of economic uncertainty when the market was already struggling. For example, in 2008, the S&P 500 dropped 18% during the Days of Awe.

Of course, the market doesn’t seem to be struggling today. The S&P 500 is up 16% so far this year. It closed yesterday within spitting distance of its high for 2023.

But we are coming into Rosh Hashanah in a mildly overbought condition. And, as we showed you in yesterday’s Market Minute, we do have the setup for a large move.

In other words, we certainly have the potential for a strong decline. If it’s going to happen, it might very well happen during this seasonally weak time of the year.

Best regards and good trading,

Jeff Clark

Are you prepared for seasonal decline?

Let us know your thoughts – and any questions you have – at [email protected].