With the start of a new seasonal market cycle, we examine how the weak and strong "seasons" have historically affected sector returns.

The beginning of May brings what is known as the “seasonally weak” six-month period for the market. Last week, we published articles around "market seasonality" and strategies to consider that leverage this historical bias. As we covered, the May to November period has typically provided worse returns over time than the six months from November through April. Even though that effect has been more muted in recent years, the long-term picture remains the same. We could hardly hope to explain this bias, much less the severity over time, but the "strong six months" of the year have accounted for almost all the Dow's average annual compounded return since 1950. As we covered last Thursday, the average return of the Dow during the seasonally strong six months has been better than 7%, while the "other" six months have produced an average return of less than one percent since 1950.

Those who have been following our research for any length of time know that sector rotation is a key aspect of many of our strategies. With the seasonal bias of the market in mind, we began to wonder how individual sectors might be affected by the seasonality phenomenon. While we don't have the same longevity in terms of data for sectors as we do for broad market indices, we have observed performance biases within the past 20+ years, which we illustrate below using the 40 DWA equal-weighted sector indices.

The graphics below utilize our inventory of 40 DWA equal-weighted sector indices, which have been "live" for the duration of our study period (most have been published since 1998), as well as a handful of benchmarks tracking equity and bond markets. The study includes market data from April 28, 2000, through April 30, 2025, tracking the returns of each index in the seasonal periods (the weak period spans May 1 through October 31, while strong periods span November 1 through April 30 of the following year). The results are displayed in graphs sorted by the "median" return of each index during each seasonal side of the study period, as well as the "min" and "max" returns during the respective periods. We’ve included each graphic along with key observations from each seasonal period.

Key Observations – Weak Season (May – October)

• Performance is typically more muted across the board during the weak seasonal period.
• Only nine of the 40 sectors examined show a higher median return than the S&P 500 during the weak seasonal period.
• Some of those sectors have also shown substantial improvement over the past month. Biomedics, aerospace, waste, software, and computers are all in the top ten performing sub-sectors over the trailing 30 days (through 5/2), and tend to outperform during the seasonally weak period.
• Those nine sectors are a diverse make-up of industries without dominance from any one sector.
• The worst performing sub-sectors include media, semiconductors, steel and oil stocks. Oil has also shown notable underperformance over the past several weeks. It will be interesting to see if historical trends hold over the next few months.

Key Observations – Strong Season (November – April)

• Only nine representatives in our examination finished the last six months in the black, including precious metals, gas utilities, and protection/safety as the best performers.
• The average return across all representatives over the last six months was -5.6%, which was the worst average return since the strong period that ended in April 2022. The typical average return across all 45 representatives sits at about 8.3%.
•  EFA showed significantly higher returns over the past six months than it typically sees during the seasonally strong period. This point of divergence will be interesting to monitor moving forward.