November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. However, the month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse.
November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-two DJIA (since 1950) and NASDAQ (since 1971) month. November is best for S&P 500 (since 1950) and Russell 2000 (since 1979). Average performance in all years ranges from 1.7% by S&P 500 to a solid 2.5% by Russell 2000.
In post-election years, November’s market prowess is essentially unchanged. DJIA has advanced in 14 of the last 17 post-election years since 1953 with an average gain of 1.9%. DJIA has been up 11-straight post-election year Novembers. DJIA’s last losing post-election year November was all the way back in 1973 (-14.0%, Arab oil embargo began 10/19/1973). S&P 500 has been up in 13 of the past 17 post-election years. Small caps perform well with Russell 2000 climbing in 8 of the past 10 post-election years, averaging 2.8%. The only real blemishes in the November post-election year record are 1969 (DJIA –5.1%) and 1973 (DJIA –14.0%, OPEC oil embargo).
Options expiration often coincides with the week before Thanksgiving. DJIA posted ten straight gains 1993-2002 and has been up 19 of the last 28 weeks before Thanksgiving. The Monday of expiration week has been streaky, but the net result since 1994 is 17 DJIA gains in 27 years with 12 advances occurring in the last 17 years. Options expiration day has a clearly bullish bias, up 14 of the last 19. The week after expiration has been a mixed bag recently. DJIA has been up six of the last nine after being down five of six from 2006 to 2011.
Being a bullish month November has seven bullish days, though it does have weak points. NASDAQ exhibits the greatest strength at the beginning and end of November. Recent weakness around Thanksgiving has shifted DJIA and S&P 500 strength to mirror that of NASDAQ with the majority of bullish days at the beginning and end of the month. We believe the best way to trade Thanksgiving is to go long into weakness the week before the holiday and exit into strength just before or after.