The Jewish high holidays are here, bringing with them a well-known investment truism that suggests investors may want to reduce their stock holdings in the short term.
Making investment decisions based around religious holidays may seem like an arbitrary or foolish endeavor, but such a strategy—known unofficially as a “Sell Rosh Hashanah, Buy Yom Kippur” play—does have a modest historical track record indicating some success.
According to the Stock Trader’s Almanac, which analyzed data going back to 1971, the Dow Jones Industrial Average falls an average of 0.6% between Rosh Hashanah, the Jewish New Year, and Yom Kippur, the Jewish Day of Atonement. This year, Rosh Hashanah began the evening of Sept. 9 and ends the evening of Sept. 11. Yom Kippur begins the evening of Sept. 18, a Tuesday, and ends the following evening.
The data is skewed by the period in 2008, during the worst of the financial crisis, when the Dow plummeted nearly 21% between the two holidays. (On a median basis, the decline between the two holidays is 0.5%, rather than the 0.6% average.)
Historically speaking, the odds of the trade working are better than 50-50, but only just barely. Over the past 46 years, the Dow fell in 26 of the years and rose in the rest.
“Perhaps it’s Talmudic wisdom, but selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times,” wrote Jeff Hirsch, chief market strategist at Probabilities Fund Management and editor of the Almanac. “The current news flow already has folks selling ahead of the Jewish High Holidays, setting up the market for further declines in treacherous September.”
The exact dates of Rosh Hashanah change every year, but it overwhelming falls in September (the rest of the time, it falls in early October), a month that is historically the weakest of the year, with an average loss of 1.05% since 1896. Across the other 11 months, there is an average gain of 0.75%.
Thus far this month, the Dow Jones Industrial Average
DJIA, -0.15%
is down 0.2% while the S&P 500
SPX, +0.18%
has lost 0.8% and the Nasdaq Composite Index
COMP, +0.11%
has lost 2.4%. Both the S&P and the Nasdaq have hit records within the past few weeks.
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Last year, the Dow gained 0.9% between the two high holidays. Jeffrey Saut, chief investment strategist at Raymond James, wrote that this trade “has not really played much in recent years,” though he conceded it was “worth a mention” when evaluating the market’s short-term prospects.
The following chart shows the performance of the Dow in past intervals between the two high holidays.
Source : MTV
