Monday, February 9, 2009

S&P 500 on a Five Month Rally? Just Ignore the First Half of Each Month

Equity markets continue to act wildly different in the first half of each month than the second. As I detailed back in December, this is in part due to rebalancing of large pension plans back to equities towards month-end (as markets have sold off, allocations to equities have become smaller than policy, thus they rebalance from better performing assets).

Going back to September, we see five consecutive months where this has been the case (by more than 5% in each instance).

If an individual had invested in the S&P only during the second half of these months, they would have actually had a positive return (almost 10%) during one of the S&P's worst performing periods EVER.


  1. Interesting! If the rebalancing explanation hold, though, that should indicate the market goes down at the end of this month, right?

  2. plans are still extremely underweight to equities (they haven't fully rebalanced each month) so expect continued rebalancing (unless they've given up).

    in addition, equity markets are up 5% so far this month. lets see if this rally continues.

  3. I agree - very interesting! This is the only site I've seen this mentioned... are there other theories out there, Jake?