The "Seasonal" Ghost of Rockefeller
The Gist: This post presents my wonky theory as to why oil and gas stocks have seasonality to them.
The following chart shows the seasonality of oil and gas equities over a trailing 10, 25, 50, and even 100-year period.
What one finds is that they tend to peak around April before bottoming out in September. This year has been no exception.
The two charts on the right separate this seasonal performance, and there are two things to observe.
The first is that September to April has tended to exhibit positive performance 70% of the time versus April to September’s 60% (top right).
Second, the seasonal performance can be explained by simply avoiding the more difficult months from spring to fall when the more pronounced negative return periods have tended to occur (bottom right).
"Sell in May and go away, come back on St. Leger's Day" is a phrase that has its roots in a period before the creation of the Federal Reserve.
A time when the U.S. banking system was fragmented, the demand for working capital to pay workers for the upcoming harvest would cause country banks to call on reserves that were deposited with state banks. The state banks would, in turn, call in capital from the national banks. The national banks would have to liquidate positions, which quite often were invested in the market and/or other money market endeavors.
The Fed was created to smooth out such seasonal flows and prevent the ensuing panics.
So the study of Standard Oil's share price is a great example of how seasonality existed in such a time before the Fed was created.
The chart on the left shows Standard Oil Trust share price data, which traded on the NY Curb Exchange, the predecessor to the AMEX, from 1894-1913.
(It traded there rather than the NYSE because Rockefeller didn’t want to disclose financials.)
The chart on the right shows its seasonal performance.
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