S&P 500 Seasonal Patterns Suggest the Industrial Sector to be Strong in November

Looking back over the last 20 years, November has, on average, been a good month for the S&P 500. In addition to this broad seasonal pattern, there have also been sectors and industries that have exhibited a seasonal tendency to outperform the S&P 500 in November, notably the industrials sector.

Since 1996, the S&P 500’s average price change for November has been 1.78%, with a best return of 7.52% and a worst return of -8.01%. One way to attempt to capture the bullish November seasonal effects for stocks, should they persist, would be to invest in the overall equities market; there are, however, other potential seasonal opportunities, such as investing in sectors or industry groups within the S&P 500 that have historically outperformed the index in November. Comparing the price performance of an underlying sector or industry group to the broad-based index over a specific time period can help find the strongest seasonal performers compared to the overall market, but it’s important to keep in mind that performance is often driven by factors other than seasonality.

Going back to 1996, the sectors and industry groups that, on average, outperformed the S&P 500 in November are highlighted in green in the table below, and those that underperformed the index are highlighted in red.

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Since 1996, the three S&P 500 sectors that, on average, outperformed the S&P 500 Index by the largest amount in November are the information technology, materials, and industrials sectors. Going back to 1996, the industrials sector, which has outperformed the most frequently, has outperformed the S&P 500 by 0.75%, with a high of 4.03% and a low of -5.22%. Going a little deeper, within the Industrial sector, the S&P 500 Electrical Equipment Industry Index has outperformed the S&P 500 Index, on average, by 3.28% in November, with a high of 13.60% and a low of -2.72%. In addition to this, the S&P 500 Air Freight and Logistics Industry Index has outperformed the S&P 500, on average, by 2.45% in November, with a high of 16.53% and a low of -7.82%. As a third example, the S&P 500 Machinery Industry Index has outperformed the S&P 500 Index, on average, by 2.14% in November, with a high of 12.80% and a low of -6.61%.  It is interesting to note the breadth of the industrial sector industries in Table 1: out of the top ten industry groups listed, the industrials sector represents five, suggesting further confirmation for relative strength within this sector during November.

Will this year’s election adversely impact any bullish seasonality effects for November? Based on historical data it does not seem likely. Since 1996, during election years, the S&P 500’s average price change for November has been 0.78%, which is lower than the 20-year trailing average but still positive. In addition to this, December’s average return is higher at 1.76%, which increases the likelihood for steady improvement in the price trend of equities going into the year-end (see the table below).

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Looking at the November seasonal patterns over the past 20 years, the seasonal data suggest that stocks may continue higher with strength in the industrials sector. However, during an election year, there is a chance that returns in November may not be as high as the historical seasonal patterns suggest. But underperformance could present an opportunity. Looking at seasonal historical data for all election years since 1996, the month of December has generated positive returns, which helps support the case to buy any price weakness in stocks on a dip.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Stock investing involves risk including loss of principal. 

Because of its narrow focus, specialty sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

 This research material has been prepared by LPL Financial LLC.

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