Learn to Expect the End-of-Month Rally

When the stock market rallies at the end of the month, a universal chorus of complaints arises among the short-sellers and underinvested. But if the month-end positive market is nothing more than a recurring phenomenon, which it appears to be, and history is telling us to expect these market inflows, what is the point of this habitual complaining?

I have data going back for 60 years on the S&P 500 and for a lesser period of time on indices such as the Russell 2000, S&P MidCap 400 and Nasdaq 100. For each, there is a historical bias to rise during the last few days of one month and the first few days of the next.

There is a natural long-term bias to the markets: They rise. This might come as a shock to perma-bears. On average, the S&P 500 rises about 8% per year, with an average daily increase of just over 0.03% per day. Not all days are positive, of course, so the positive ones will on average see a rise of more than 0.03%. Positive days will also, in the long run, outnumber negative days. And they tend to cluster in a period just before and after a new month begins.

Money flows into and out of markets have very different footprints. When money flows into markets, it does so incrementally. There isn't a rush to buy stocks or invest. In fact, the only rush tends to be to cover short positions, but that is the work of shorts, not long-term investors.