Sell Rosh Hashanah, buy Yom Kippur? Revisiting the market adage in choppy 2022 – Ford Motor (NYSE:F), FedEx (NYSE:FDX)
An old market adage that is often mentioned just before the Jewish holidays is “Sell Rosh Hashanah, buy Yom Kippur”. With the holidays starting Sunday at sundown, it’s time for this year’s investment interpretation of the adage from this investor’s perspective.
And boy, it ain’t easy. The holidays of 2022 are certainly taking place during turbulent times in the United States and around the world, and Friday’s price action certainly does not conjure up many bullish scenarios.
Historical origin: The origin of the rule is based on the concept that followers of the Jewish faith want to be free from material possessions during the holiest time of the calendar year.
During the 10 days between the two major festivals, Jews reflect on their actions of the previous year and atone for their sins while setting a new agenda for the coming year.
Once the cleanup process is complete, they are free to return to the markets and assess investments for the coming year. Those who are ultra-religious may refrain from the markets altogether during this time.
Long-term mixed results: No adage or trading strategy is 100% accurate over time.
In 2021, following the original adage was a winning strategy. There was a rare occurrence last year when the market was closed for the Labor Day holiday. With Rosh Hashanah beginning at sundown on Monday, September 6, the markets were closed.
Therefore, the last trading day before the start of the holidays was Friday, September 3, 2021.
On that day, the S&P 500 cash index stood at 4,535.43. After the 10 trading days and the conclusion of Yom Kippur on Thursday September 16, the first day to redeem the index would have been Friday September 17 at the opening price of 4,469.74.
This marks a drop of 65.69 points or 1.5%, which turns out to be a winning strategy if used in the aforementioned sequence.
Of course, the index went to much higher prices until the start of the year, but if one still held the bag of this positioning, they would be deep in the red. With the cash index at 3,695, this represents a drop of 774.74 points or 17%.
Sell Rosh Hashanah working like a charm: 2022 has been one of those rare years where “selling the tear” has been the right thing to do time and time again.
From the first trading day of the year and right through to the late June low, the bears were in charge.
The bear market’s rally from that low took the cash index down to 4,325.28 in mid-August, but nearly all of those gains have faded.
A large majority of the retreat came after the worst-than-expected August CPI report revealed that inflation had not peaked.
From the closing price (4,110.41) on Monday September 12 before the September 13 report to its closing price (3,693.23), the index slipped 417.18 points or 10.1%.
The cash index is still about 26 points above its year-end low of 3,666.77
Buy Yom Kippur? With the speed at which the index has fallen, it could easily breach the June low on Monday. This is much earlier than the end of Yom Kippur, which is October 5.
The next opportunity to redeem the index according to the adage is October 6th.
Right now, it would take a brave soul to blindly initiate buying in a volatile bear market.
The number of factors working against the market are numerous. Of course, the most authoritarian continues to raise inflation, which leads to more interest rate hikes.
The third quarter earnings season is off to a bad start, even if it hasn’t really started yet. Evidenced by several companies already warning that profits will be lower than estimated.
Last week the warnings came from indicators of the economy FedEx Corporation FDX and Ford Motor Company F. Before it was Nucor Corporation NUDEwhich has been hammered since its forecast drop from $140 to $104.
The macroeconomic environment is in disarray with the war in Ukraine and tensions between Taiwan and China which could draw the United States into the conflict. Finally, the relentless rise of the US dollar punishes other countries that depend on US products. Finally, the TINA trade (there is no alternative) in the market is dead. Constantly rising interest rates are draining trillions of dollars from the stock market in search of some sort of return, even if it is well below the rate of inflation.
To advance: For investors waiting to redeploy their assets in a test of the June low, Friday was damn close to the S&P 500. The strong rally at the close will have investors wondering if it was a another opportunity to “buy the dip”. .
Taken too optimistically, the latter part of the old adage “Buy Yom Kippur” may present investors with a lower risk entry into the markets.
Photo via Shutterstock.