What You Should Know About Dow Jones Industrial Average Returns by Month for the Past Five Year (Historical Trends)

Sep 3, 2012 -

Historical Dow Jones Average in Charts (Monthly)


How well did the Dow Jones Average perform in the past five years? Is past Dow Jones performance an indicator of future results?

Below I took the data from every month in the past five years (excluding 2012) and calculated the average for the month. Then generated a graph to show it's increase/decrease month over month.

What months of the year does the Dow Jones perform the best?

Many of us know that historically in the past 50 years, April and December seem to be the best performing months. On average, in the past 50 years, April and December have increased 1.71% or 1.56% compared to the respective prior month. However, if we look at the chart for the last five years, we get a different picture. April is one of the better performing months, but December falls a close fourth behind July and March. You can argue that these charts are skewed because of the 2008 financial crisis. But once you take the chart out 10 years then you run into the tail end of the dot com boom and that itself would skew the data. Also, market conditions have changed significantly over the past ten years. Including the fact that novice traders can easily use discount brokerages to trade online versus over the phone. On the other hand, two or three years is too short of a time span. Bottom line is that there will always be what we call in accounting "one-time" occurrences, but I digress. 

Dow Jones Average - Percentage Increase Month Over Month 2007-2011

How did the Dow Jones Average perform in 2012 in comparison to the past five years?

Below is a straightforward line graph of the market performance since January. If you pull up the Google Finance chart for YTD, you will see a similar chart. May was a bad month as we lost more than 6% of April's gains. Although past performance would have suggested that May would have been a declining month, the magnitude of that decline would have been predicted. Similarly, while June has historically been a terrible month, this year we saw the biggest increases (month over month) in June! This suggests that prior historical results does not necessarily suggest future performance will be the same or even similar.

Dow Jones Average Chart 2012

Where does the Dow Jones go from here? 


As we enter September, which many have suggested that it is historically the worst performing month of the year, be weary and cautious. Use technical analysis for shorter term trades and fundamental for longer terms. But, understand that most of the data out there focuses on the past 50+ years. If you are a stock trader, the most likely, we aren't trading 50+ year terms. We are in and out of stocks within a couple years, month, weeks or even sometimes days. Why would you use the 50+ year average when you can use sometime of shorter term? Times have changed significantly over the past 50 years. 


Dow Jones Average for the past 50+ years and 30+ years

While information dating back to the 50s is still valuable in conducting your stock trading analysis, we should take this with a grain of salt and combine it with more current information.

 
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