Summer Doldrums

Ah, the summer doldrums.  Thematically, this is somewhat related to our last post of "Sell in May and Go away”. One doesn't have to look far to find nautical parlance being adopted by participants in financial markets.  And it does make sense as there are comparisons to be made, from "rough seas ahead", to "a strong breeze at our backs", the term "doldrums" comes from specific band around the Equator (from 5 degrees south, to 5 degrees north latitude) and at least as far as sailing goes may best be described by a post on a site for modern ocean racing under sail power:

The concept of The Doldrums has a bit of a reputation. In fact, a pretty bad one. The Doldrums holds a distinct place in maritime history, having developed a reputation as a potentially deadly zone which could strand ships for weeks on end, causing them to run out of food and drinking water. In those days, with supplies running low, and scurvy setting in, delirium, starvation and cabin fever could all take hold – and getting through this mysterious patch of Atlantic Ocean quickly wasn’t just a matter of first or last place, but life and death.1,2

Indeed wind was the lifeblood of seafaring and could mean life or death as in the immortal words of Coleridge from his "Rime of the Ancient Mariner"3:


Day after day, day after day,

We stuck, nor breath nor motion;

As idle as a painted ship

Upon a painted ocean.


Water, water, every where,

And all the boards did shrink;

Water, water, every where,

Nor any drop to drink.


Let us now attempt to quantify this "Summer Doldrums" effect on the markets.  For this test, we again take S&P 500 data and use a 21-market day period which equates to roughly one month of data (there will sometimes be a bit of overlap but not enough to make much difference for our purposes).

We will take the High price, subtract the low price of the range, and divide by the ending value to give us a percentage.  This allows us to be able to compare values over different time frames.  The examples below will help us illustrate this visually with three periods from last year (2020).

(Chart Source: Stadion)

(Chart Source: Stadion)

(Chart Source: Stadion)

We can then repeat this process for each month, and here we will look at the last 20 years of data. 

(Chart Source: Stadion; ; Data Source: S&P 500 data from Bloomberg Terminal)

(Chart Source: Stadion)

Finally, we can average the range by month for this 20-year period and graph it. We can see that over the last 20 years in fact the summer months do tend to have smaller ranges than most of the other months. Interestingly, we also see that December tends to have a relatively small range. So, from this analysis methodology at least, we can see that the "Summer Doldrums" effect does appear to be "a thing" and that some myths may be true!

Rob Dailey
Portfolio Management Analyst




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