That SocGen's Andrew Lapthorne has long held a cynical view of the stock market's relentless grind higher, similar to that of his colleague Albert Edwards, is not a secret: he made as much clear in the first sentence of his latest note to client "time to sell equities to buy bonds?" in which he said that "to the apparent surprise of many, last week the S&P 500 actually fell, losing 1.82% on Wednesday alone, the worst daily return since September last year. That such a song and dance was made about it was probably more a function of the subdued nature of equity markets recently than the actual performance impact itself - after all the S&P 500 ended the week only down 0.4%."
Still, with Lapthorne, and SocGen's clients forced to trade the market in front of them, and not the market they wish they had, the strategist went on to propose a pair trade, which in a market engulfed by passive investing money-flow "noise", actually makes sense - a derivative of the familiar "sell in May" trader mantra, which while applicable to stocks, is just the opposite of what one finds when looking at seasonal patterns involving Treasuries.
According to Lapthorne, "with summer fast approaching in the UK (we know this as our office air conditioning has broken down), we discussed seasonality last week with an ex-colleague and now client. There is a wealth of interesting research out there discussing and documenting seasonal trends and market moods. Sandrine Ungari on the SG Cross Asset Quant team pointed us to a paper inferring that SAD financial analysts could be at fault, and of course as is commonplace these days you can even buy a whole host of ETF’s based around seasonal trading."
Indeed, "the evidence from the US bonds and equity markets looks compelling" the SocGen strategist explains:
With June to September among the weakest months for equities...
... but the strongest for bonds.
Is this summer holiday related? Lapthrone's response: "a quick check reveals these patterns do not exist in Australia, where children are actually at school from July to September."
SocGen's (seasonal) recommendation: "Going on holiday? Consider Buying bonds."