Posted on 06/29/2012
Monday will be the first trading day of July, which has a particularly good track record for investors, having produced positive returns in the Dow Jones Industrial Average (DJIA) in 18 of the past 22 years! Then again, the first day of virtually any month produced positive returns with regularity for much of the past 15 years, though not so much over the past 12 months. When we quantify the magnitude to which the first trading day of the month has accounted for overall market gains since 1997 the results are quite frankly staggering. The Dow, for instance, closed the month of August 1997 at 7622.42, and has thus gained 4,979.84 points in sum since that time. These gains have hardly come in uniform fashion, however, and have instead been rather "front-loaded." The Dow Industrials have actually gained 5570 points on the first trading days of the month since September 2nd, 1997, and have lost 590 points (cumulatively) on all other days. Amazingly, the returns of just 178 trading days since 1997 have massively outpaced the 3,557 others. On average, the Dow is up about 31 points on each first trading day of the month, and down slightly on all others. While this is an amazing 15 year trend, the past year has been anything but compliant with that trend. Since the end of May 2011 the Dow has lost 688 points on "first trading days," and gained 720 on all others. Go figure.
Based upon Dow Jones Industrials (DJIA) Returns from September 2, 1997 through June 28th, 2012
|First Trading Day of Month||178 days||+5,570 Points|
|All other days (Ex. 1st day of Month)||3557 days||-590 Points|
|Total||3735 days||+ 4980 points|
It is worth mentioning that prior to 1997 the bias is seemingly non-existent, as we have explored the strategy going back to 1900. This appears to be a modern phenomena, likely aligned with systematic contributions to defined contribution plans and pension investments, which often occur at the beginning and middle of the month, as well as advancements in technology that allow such end-of-month investments to be made simultaneously. Of course, based upon the results over the past year, this phenomenon may well have been "arb'd" away right before our very eyes.
After seeing the numbers above, you may be wondering how to replicate that. There's an ETF that tracks the Dow Jones Industrial Average, which trades under the ticker symbol "DIA". The image below is a snapshot of the 10 holdings that are currently in DIA as well as the sector breakdown.
(source: Stock Traders Almanac, 2012)