Why the dubious 'sell Rosh Hashanah, buy Yom Kippur' investing strategy looks even more complicated this October

By Isabel Wang

Middle East tensions, the port strike and the upcoming election make a case for cautious trading in October, say analysts

It might seem arbitrary to make stock-investment decisions by blending religious observance with financial strategy, but there's one old trading folklore commonly mentioned during this time of year: "Sell Rosh Hashanah, buy Yom Kippur."

Rosh Hashanah, the Jewish New Year, starts this year at sundown on Wednesday, Oct. 2, while Yom Kippur, or the Day of Atonement, begins at sunset on Friday, Oct. 11, and ends on Saturday, Oct. 12.

The Wall Street adage suggests that U.S. stocks tend to fall over the 10 days the Jewish High Holidays are observed, so investors would be better off selling beforehand and buying afterward. But some market analysts believe investors should be wary of this seasonal trading pattern this year.

Historically, the "sell Rosh Hashanah, buy Yom Kippur" strategy is closely tied to the stock market's tendency to underperform in September, with investors often looking to "minimize exposure" during this period, according to Yehuda Leibler, chief strategy and technology officer at ARX Advisory.

Since 1971, the S&P 500 SPX has posted an average loss of around 0.5% between Rosh Hashanah and Yom Kippur, with declines occurring 29 out of 52 times, according to data compiled by ARX Advisory.

See: It was a September to remember for stocks - but October presents fresh challenges for the rally

This year, however, things could be more complicated. The later start to Rosh Hashanah and Yom Kippur may impact investors' behavior, especially in a market that is poised to defy historical volatility patterns after an unusually strong September, Leibler told MarketWatch on Wednesday.

To be sure, the start of the Federal Reserve's monetary-easing cycle and bets that the U.S. economy could achieve a soft landing propelled the S&P 500 and the Dow Jones Industrial Average DJIA to their best September since 2019.

"When looking at past years where September is positive, October historically continues to rise, which could dampen the impact of the 'sell Rosh Hashanah' strategy," Leibler said.

See: The stock market is entering the most volatile month of an election year - but the rally may be here to stay

Jewish holidays are celebrated according to the lunar calendar, which means that Rosh Hashanah can fall as early as Sept. 5 and as late as Oct. 5, while the date of Yom Kippur may fall in a range from Sept. 14 to Oct. 14 each year.

Steve Sosnick, chief investment officer at Interactive Brokers, said the problem with the Rosh Hashanah seasonality is that it's "a moving target." In other words, it fails to translate the seasonality on the lunar calendar to the Gregorian calendar, or the solar calendar, which is used by most of the world to determine the date.

"At this point, the 'sell Rosh Hashanah, buy Yom Kippur' strategy is more of an anachronism, because the vast majority of money that's invested or traded in the stock market has nothing to do with those dates," he told MarketWatch via phone on Tuesday.

See: What Iran's missile attack on Israel means for oil prices

What's more, other market-moving events, like the ballistic missile attack launched Tuesday by Iran on Israel and the ongoing port strike in the U.S. have created additional layers of uncertainty to the stock market, which could "inject volatility into the market despite the broader positive trends," Leibler said.

"The timing of the High Holidays might slightly delay the typical risk-averse moves that traders make around this period, but the larger, more pressing global factors - rising oil prices, inflationary pressures and election-related uncertainties - will likely overshadow any specific timing-related effects," he added.

Keith Lerner, co-chief investment officer and chief market strategist at Truist Wealth, said investors need to use stock-market seasonality as "one of many factors" to make their investing decisions, instead of relying solely on it without "having a good grasp" of the ongoing trends in the economy and other factors that could impact the broader financial markets.

See: October tends to be a positive month for stocks - unless a presidential election is looming

U.S. stocks were edging lower on Wednesday early afternoon. The Dow was off less than 0.1%, leaving it nearly flat at 42,116, while the S&P 500 was falling 0.2% and the Nasdaq Composite COMP was also flat, according to FactSet data.

-Isabel Wang

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10-02-24 1426ET

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