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.
Wednesday marked the start of Rosh Hashanah, the Jewish New Year. It also kicked 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.
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Are We Looking at Another 4% Drop?
But stocks still tend to decline during this period. Last year, the S&P 500 dropped 200 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 much at the moment. The S&P 500 closed Wednesday within spitting distance of its all-time high.
But we are coming into Rosh Hashanah in a mildly overbought condition. And, as we’ve highlighted in the past few Market Minute essays, 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 – which runs through next week.
Best regards and good trading,
Jeff Clark
Editor, Market Minute