Make Seasonality Great Again

How Trump's Midterms Can Exacerbate Underlying Trends

Longtime readers will recall back in 2024 that I laid out the only seasonality voodoo I have found of particular use when fundamentals, narrative, and market action align. The first note kept us from being bearish beyond the very short term (May ended up frontrun in April), and the second note in mid July which flagged the potential for a summer chop and dispersion unwind that was almost immediately followed by the Yenmaggeddon episode, again keeping us out of some trouble:

“…certainly precedent for chop that makes you wonder how VIX is still 14 handle… and assuming it moves higher, the potential for dispersion unwind is very real.”

The election calendar can be a useful guide over time. It has a good hit rate and a long track record — long enough that, like him or scoff at him, even a dye-in-the-wool fundamental value investor like GMO’s Jeremy Grantham has admitted that election seasonality is something he follows. I recall seeing him talk about this as far back as the 2000s. In 2016 he declared the phenomenon dead due to the Fed, but then came back to it in 2023 in spite of his bearishness.

As we approach year end and think about 2026, I thought it might be worth revisiting the subject given it has been a long time since the last discussion, and especially in light of how oddly invisible seasonality has become. This will undoubtedly confirm many priors, and as with the Observer Effect in quantum physics, once highlighted it is visible, and thus will probably fail spectacularly. Still, we do the work and then see where the chips fall.