Sell Rosh Hashanah, Buy Yom Kippur? Revisiting The Market Adage In Turbulent 2022

One old market adage that is commonly mentioned just ahead of the Jewish holidays is "Sell Rosh Hashanah, Buy Yom Kippur." With the holidays commencing Sunday at sundown, it is time for this year's investment interpretation of the adage from the perspective of this investor.

And boy, it is not easy. The 2022 holiday is certainly taking place during turbulent times in the U.S. and the world, and Friday’s price action is certainly not conjuring many bullish scenarios.

Historical Origin: The rule's origin is based on the concept that followers of the Jewish faith want to be free from material possessions during the most sacred period of the calendar year.

During the 10 days between the two major holidays, Jews reflect on their actions from the previous year and atone for their sins while setting a new agenda for the upcoming year.

Upon completion of the cleansing process, they're free to return to the markets and evaluate investments for the upcoming year. Those who are ultra-religious may abstain from the markets altogether during this period.

Mixed Results Over The Long-Term: No trading adage or strategy is 100% accurate over time.

In 2021, following the original adage was a winning strategy. There was a rare occurrence last year when the market was closed for the Labor Day holiday. With Rosh Hashanah beginning at sundown on Monday, Sept. 6, the markets were closed.

Therefore, the last trading day before the commencement of the holiday was Friday, Sept. 3, 2021.

On that day, the S&P 500 cash index settled at 4,535.43. Following the 10 trading days and the conclusion of Yom Kippur on Thursday, Sept. 16, the first day to rebuy the index would have been on Friday, Sept. 17 at the opening price of 4,469.74.

That marks a decline of 65.69 points or 1.5%, proving to be a winning strategy if employed in the aforementioned sequence.

Of course, the index did go on to much higher prices until the beginning of the year, but if one was still holding the bag from that positioning, they would be deep in the red. With the cash index at 3,695, that makes for a decline of 774.74 points or 17%.

Sell Rosh Hashanah Working Like A Charm: 2022 has been one of those rare years when “selling the rip” has been the right thing to do time and time again.

Beginning with the first trading day of the year and until the late June low, the bears were in command.

The bear market rally off that low took the cash index back to 4,325.28 in mid-August, but nearly all of those gains have withered away.

A vast majority of the retreat has taken place following the worse-than-expected August CPI report that revealed inflation has not peaked.

From the closing price (4,110.41) on Monday, Sept. 12 ahead of the report on Sept. 13 to its closing price (3,693.23), the index has skidded 417.18 points or 10.1%.

The cash index is still roughly 26 points above its low close for the year at 3,666.77

Buy Yom Kippur? With the velocity with which the index has been falling, it could easily breach the June low on Monday. That is much sooner than the end of Yom Kippur, which is on Oct. 5. 

The next opportunity to repurchase the index according to the adage is on Oct. 6.

At this time, it would take a brave soul to blindly initiate longs in a volatile bear market.

The number of factors working against the market are numerous. Of course, the overbearing one is still increasing inflation, resulting in more interest rate hikes.

The third-quarter earnings season is getting off to a rough start, even though it has not truly begun yet. This is evidenced by several companies already warning that earnings are going to come in below estimates.

In the last week, the warnings have come from bellwethers for the economy FedEx Corporation FDX and Ford Motor Company F. Before that it was Nucor Corporation NUE, which has been hammered since its guidance cut, falling from $140 to $104. 

The macroeconomic environment is in disarray with the war in Ukraine and tensions between Taiwan and China that may drag the U.S. into the conflict. Finally, the relentless move higher of the U.S. dollar is punishing other countries that depend on U.S. products, Last but not least, the TINA trade (There Is No Alternative) to the market is dead. The constantly rising interest is draining trillions of dollars out of the stock market in search of some kind of yield, even if it is well below the rate of inflation.

Moving Forward: For those investors that were waiting to redeploy their assets at a test of the June low, Friday was pretty darn close to that for the S&P 500. The solid rebound into the close will have investors pondering if this was another “buy the dip” opportunity.

From an overly optimistic viewpoint, the latter part of the old adage, "Buy Yom Kippur" may present investors with a lower-risk entry into the markets.

Photo via Shutterstock.