Seasonality

The business cycle can be divided into two again. The year can be divided into two distinct periods an ascending accumulation phase followed by a descending distribution phase. 

Every asset class or sector would be subject to some form of seasonality. In the equity markets,

1) the period between May and October where volatility tends to be higher and returns for equity investors have been traditionally poorer since the 1950s and 2013

2) the period between November and April which have concentrated the bulk of positive returns over the years, such that when Q1 is strong, follow up quarters have generally difficulty to catch up (since 1970, every time Q1 up 6% or more then the market has risen on average by 8%).

The reasons are opaque and the pattern changed over the years, as the influence of agriculture on the economy declined and the importance of retail inventory cycle grew. 

According to a 2017 column in Forbes magazine, buying the Dow Jones Industrial Average in May and selling in October systematically (ignoring costs and dividends etc) between 1950 and 2013 would have yielded returns of 0.3%, while buying November and selling in April would have yielded 7.5%. Hence the old traders' adage: sell in May and a go away.

There is no definite explanation behind this phenomenon. 

Dividend coupons comes to mind as one possibility. In Europe, corporate dividends are paid in May, such as equity values are marked down once the cash is leaving the companies' coffers. In the US, however, dividends are paid on a quarterly basis and buy back have become a more prominent form of rewarding shareholders. Therefore, the answer lies somewhere else. 

Instead, we believe it is due to the fact that peak inventories tend/economic commitments tend to be reached around May and up to October ahead of Thanksgiving and Christmas. Then, money is consumed (used for economic purposes) and has to leave risky assets. Once, the inventory is monetized (once the goodies leave the shelves i.e. towards the year end) money is flowing back into financial assets until the restocking process resumes (around Spring time). This explanation at least would explain why before 1950, i.e. in a period where agricultural inventory commitments were more prominent in the economy, the cycle was slightly earlier, starting from the middle of the winter and until the harvest.