The Myth about Window Dressing
What's a guy gotta do to catch a break around here!?
You can set your clock by all of those - they happen with unerring regularity. But while there is proven evidence of cycles in the first three, there isn't much compelling evidence that I have found to support the idea that fund managers goose their results by supporting stocks into the end of the quarter.
I usually take a fresh look every three months or so, just to see if I'm missing something, but all my searches for proof of window-dressing in the S&P 500 have come up fruitless. It may happen in individual stocks, but it sure doesn't seem to happen in the market as a whole.
Let me show the latest look. What I looked for were any other times in the history of the S&P 500 where it had been negative by at least 1% in the first quarter, then had a gain in the second quarter up until the last 10 days of June. Surely, if most portfolio managers had a loss in the first quarter, then gains to protect heading into the home stretch of the second quarter, we should see some evidence that they were trying to protect those gains in the last two weeks of the quarter.
But that's not the case. In fact, it seems to be the opposite. Here is the actual data:
Year......S&P return last 10 days of June
Only three of the ten years where this occurred did we see a gain in the last two weeks of the quarter, and two of them were miniscule. But we saw several large losses - perhaps it was due to those portfolio managers trying to sell to protect their gains, or perhaps that has absolutely nothing to do with it.
I don't know, and frankly I don't really care. All I care about is whether I can make money by betting on quarter-end window dressing. And, usually, I can't.
If the market happens to rise over the next week, we'll be inundated with proclamations that surely it is due to funds trying to protect any gains they might have. But don't buy it...if you have to have a reason to explain the action, I think you should find something else.
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