The Factory Daily Letter

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What seasonal tailwinds might lie in store for June?

Equities follow the year-to-date trend, while it can be a pivotal month for oil and Treasuries

For US equities the month of June has historically not proven particularly volatile, and the seasonal performance is average: if anything, it tends to confirm the year-to-date trend (while it can be a pivotal month for other asset classes – particularly bonds and the US dollar).

The seasonal trends for equities

On US equity market data going back to 1928, the S&P500 returns +0.8% on average in June, fifth in terms of monthly return:

 

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

However, only 57% of the 94 June returns recorded are positive, the month ranking tenth on this basis:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

If we limit our study to data going back to 1990 however,  June is the third-worst performer with an average -0.1% return:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

Yet if we look the positive return occurrence statistics, June still ranks poorly (ninth):

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

The month of June has however been holding positive since 2016, the last six June returns having been positive:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

How does the story change if we take into account market performance to date?

Below we present the different historical average June returns according to various year-to-date (to the end of May) performance scenarios - on data going back to 1990.

The main conclusion with which we introduced this letter is immediately apparent here: June tends to perform according to the year-to-date tendency.

The S&P500 has on average suffered negative monthly returns where year-to-date performance has been negative, and has enjoyed positive returns when the year-to-date trend has been positive. Average June performance across the various scenarios can be summarized as follows: 

  • -2.6% when the year-to-date return has been between -5% and 0 (7 instances) and -2.7% when year-to-date returns have been less then -5% (3 instances); and
  • +0.5% when the year-to-date return has been between 0 and +5% (and +1.3% when above +5%):
Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

This also remains true on data going back to 1928 (the exception being that when year-to-date performance has been worse than -5%).

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

This tendency to follow the year-to-date trend is also evident in the chart below which shows intra-day average market performance over the month of June on data going back to 1990 according to each year-to-date scenario: a negative start to the year usually implies a negative June on average; and vice-versa:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

The sector story

On data going back to 1990, only the technology, health care and communication services sectors have on average made positive average returns over the month of June, confirming an overall average negative pattern sector-wise. Most notable is that other than in the case of communication services, June underperforms May on all sector indices (perhaps unsurprisingly given May’s strong seasonality):

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

What about the other asset classes?

If we look at the average monthly returns on different asset classes on data going back to 1984, we notice that June can however be pivotal for some: notably it can mark the end of the best “window” of the year for crude oil, and can herald the beginning a fall in the US dollar.

While oil tends to do best among the other asset classes in June (+1.25% on average), the US dollar and gold have historically fallen most on average (-0.23% and -0.25% respectively):

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

Moreover, June’s underperformance of May rings true across all except for commodities :

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

The case of crude oil

As we discussed in our studies on March, April and May seasonality, while crude oil is currently up c.50% year-to-date (largely boosted by geopolitical tensions), June tends to represent the closure of the ‘black gold’s' best seasonality window (which starts in March).

However, 2022 is clearly a standout year for oil and the energy sector overall, and geopolitics may continue to drive the crude rally for longer this year.

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

The US dollar

The seasonal tailwinds for the ‘green gold’ turn negative in June in a trend that tends to run until the year end. Against the current backdrop, should the Fed indeed start to dial down the hawkishness just a little (as some now expect) and an easing dollar be verified, such could bring a tailwind to equities in our view.

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

US Treasuries

June tends to confirm a fall in yields that is typically initiated in May then runs in quite volatile manner until the year end. Below we illustrate this by way of historical futures data on the US 10-year Treasury note:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

Playing seasonality – is there anything in it?

As we are all too frequently reminded, past performance is not indicative of future returns. However, and as we show each month in our seasonality updates, some strong and “reliable” patterns nonetheless exist on markets (over different asset classes and over different time ranges).

So, what if we want to play seasonality on stocks ?

To answer that question, we have carried out a backtest using point-in-time data and built two long-only portfolios made up of the 20 seasonal best/worst names within the S&P500: equally-weighted; rebalanced monthly and using median monthly returns over the past 20 years to determine the seasonality factor (so each company at the inclusion date must have at least 20 years of price history).

The theoretical cumulative returns of these two portfolios, along with the S&P 500 Index, are presented below. After more than 12 years, the return of the “best seasonality” portfolio is almost twice that of the worst (+805% vs +424%) while the performance of the S&P 500 over the same period has been +387%. This implies that seasonality factors have over the longer-term proven to ‘work’ – particularly on the long side:

Source: FactSet; Pictet Trading Strategy; as of 31/5/2022.

Seasonal stock screenings: June’s winners and losers

US Best / Worst

In the tables below we present the US stocks (S&P500) with the best/worst combination of positive occurrences and average returns in June, ranked by descending/ascending median return and screened with our quantitative grades:

Source: FactSet; Markit, Copyright © 2022 S&P Global Market Intelligence; Pictet Trading Strategy; as of 31/5/2022. *Criteria are explained in the endnotes. The target price presented in the chart is based upon chart analysis. This is not the product of a
Source: FactSet; Markit, Copyright © 2022 S&P Global Market Intelligence; Pictet Trading Strategy; as of 31/5/2022. *Criteria are explained in the endnotes. The target price presented in the chart is based upon chart analysis. This is not the product of a

EU Best / Worst

In the tables below we present European stocks (Stoxx Europe 600) with the best/worst combination of positive occurrences and average returns in June, ranked by descending/ascending median return and screened with our quantitative grades:

Source: FactSet; Markit, Copyright © 2022 S&P Global Market Intelligence; Pictet Trading Strategy; as of 31/5/2022. *Criteria are explained in the endnotes. The target price presented in the chart is based upon chart analysis. This is not the product of a
Source: FactSet; Markit, Copyright © 2022 S&P Global Market Intelligence; Pictet Trading Strategy; as of 31/5/2022. *Criteria are explained in the endnotes. The target price presented in the chart is based upon chart analysis. This is not the product of a

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