Why Now Could Be The Best Season to Buy Stocks

The stock market has a history of making specific swings at specific times of the year. Given how awful equities have performed this year, what market insiders refer to as "seasonality" doesn't appear to matter all that much. But that may happen.

After all, Wall Street could use something dependable right now. The Federal Reserve's inflation struggle — five rate hikes since March and the end of asset purchases — has thrown the market off guard. Then, as interest rates rise, there is an increasing risk of a recession. Now, toss earnings projections into the fire: Almost every expert seemed to believe they must be reduced. The key question, though, is about how much?

All of the uncertainty has resulted in widespread losses and volatility. The S&P 500 has fallen more than 20% since its all-time high in early January. The Cboe Volatility Index (VIX) has risen beyond 30, whereas the typical range is in the teens.

However, today is a fantastic moment to buy stocks. According to Stifel, the S&P 500 has returned about 3,000% in inflation-adjusted terms from November to April since 1961. Those increases are slightly lower than the S&P 500's total cumulative return during the same six decades. In comparison, the total return from May to October for the same period was only 14%.

The S&P 500 has fallen approximately 10% since May, as if on cue. Lower stock prices — investors selling shares to raise cash — are enticing purchasers. Now, if the economic picture improves shortly, purchasers will likely pick up a few shares here and there.

A stronger surge may even be feasible in the coming months, near the end of the year. Wall Street refers to this as a "Santa Rally" — profits from people replenishing their retirement savings. According to Dow Jones Market statistics, the S&P 500 has averaged a 2.7% increase in the fourth quarter for the past 95 years.

However, there is one condition that relates to the economic forecast. Positive indicators should get things moving. A more hawkish Fed, or even signs of a collapse, might put a stop to seasonality this year: The market usually anticipates a recession many months before it occurs.

In the fourth quarter of 2008, for example, the S&P 500 fell 23%. To be honest, the financial crisis was exactly that: a crisis. A slight recession is predicted for next year.

Whether the sky is overcast or bright, Stifel's chief equities analyst Barry Bannister argues that the season from November to April is favorable for investors. According to him, the index gains most years.

And according to Bannister, "When it works, it works so effectively that it has a cumulative effect on your returns. You're having some emotional difficulties investing, but that's when the finest possibilities present themselves. You must be able to be greedy while others are afraid."

What Bannister said is difficult to accept — but it is so true. Investing in tumultuous times is just for the brave. Only you can decide whether to take the risk. If you can't, simply dip your toe in the water and save some money in case that magical seasonality doesn't kick in.