Pretty much all mutual funds and ETFs in the US have tax years that end on October 31st. These entities are required by law to distribute basically all the dividend/interest income and realized capital gains collected during their fiscal year to shareholders by calendar yearend (so that the IRS can collect income tax from holders). The Halloween tax year end gives the funds time to close their books, calculate the distribution accurately and get it to holders before the end of December.
Invariably, funds try to adjust the size of these distributions during trading in September – October. Whether this means making them larger or smaller (shareholders prefer to have a distribution but not a gigantic one), it involves selling. This means a seasonal market correction between September 1st and October 15th. The only exception I’ve seen in over thirty years has been in times directly following a major market selloff like that in 2000 or in 2008-09, when funds are working off massive realized losses–and have no taxable income to distribute.
Last year, for example, the selloff in the S&P was about 7.5% and went from mid-August through late September. 2014’s was 6%+ and lasted from September 19th through October 17th.
This year September has delivered about a 1% loss so far, which would be an extremely small seasonal dip.
Where’s the selling? I don’t know. Maybe the lack of downward market pressure comes from the fact that the S&P is flat during the current fiscal year. In any event, if selling doesn’t emerge in the next, say, week, it’s unlikely to develop.
If it doesn’t, we’ll have missed an annual buying opportunity and will have to press ahead with annual portfolio adjustment plans without this advantage.
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