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The myth of Wall Street's 'Summer Rally'

An Unidentified Man Relaxes On A Beach.

BOB MOON: So the Memorial holiday's behind us now and traditionally, it's the start of Wall Street's "summer rally." Even if there's really not much to it.

Allan Sloan is here to set us straight. He's senior editor-at-large for Fortune magazine. Greetings, Allan.

ALLAN SLOAN: Good morning Bob.

MOON: So, what is this? That the summer rally is all just a myth?

SLOAN: Well, it turns out if you look at the numbers, which they guys at Stock Traders Almanac showed me, for two-thirds of every season for the last 40 years, the stock market has risen. But the least big average increase is for the summer. So the summer in fact has been the weakest rally or increase of any of the seasons.

MOON: There must be some kernel of truth to this. Where did this myth come from then? Is there any truth to it at all?

SLOAN: Well, the myth came from the fact that back in the day, when you needed a broker to do business, people went away for the summer and were out of communications the brokers needed something to sell. So they sold you the 'summer rally.' You know, "Hey Bob, you're going to go away, you don't want to miss the summer rally. Why don't you buy something." Of course, it turns out there's also a spring rally, a winter rally, and a fall rally.

MOON: So this is like selling new Coke, then? Why should we ever trust stock brokers if they're just going to lie about this to encourage everybody to buy?

SLOAN: Well, a lot of stock brokers are, you know, perfectly decent people, but it's not even like it's a lie. It's a sales pitch because there's a two-in-three chance that stocks will actually rise over the summer and Bob, you wouldn't want to miss the rally.

MOON: Well, I don't to have too much of a chuckle over this Allan, because I'm assuming also, that there are also contrarians out there who invest against this summer rally idea knowing that it's a fake.

SLOAN: The one thing you know is that when Wall Street invests for itself, they take very piece of information they have and they use it to try to make money. I don't think they're spreading the myth of the summer rally to bet against it, but then again, who knows?

MOON: Allan Sloan is senior editor-at-large at Fortune magazine. Thank you Allan.

SLOAN: You're welcome Bob.

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