Ring out the old with real estate

Key Points

• The last five trading days of the year have tended to be favorable for stocks
• One sector that has stood out particularly is the real estate sector
• For 2023, this period extends from the close on 2023-12-21 through the close on 2023-12-29

The last five trading days of December

The table below displays performance stats for each of the major S&P 500 sectors and factors ONLY during the last five trading days of every year starting in 1926.

The results are ranked by cumulative growth. The results also show Win Rate % (i.e., the percentage of years when a sector/factor showed a gain during the last five trading days of the year) and Worst % (i.e., the worst single year-end performance). The top performer in each category is highlighted in green, the second best in blue, and the third best in orange.

The chart below displays the growth of $1 invested in the Real Estate sector only during the last five trading days of the year every year since 1926.

The table below summarizes year-end Real Estate sector performance.

If we look at 5-year rolling returns, over 96% of 5-year periods saw the real estate sector register a net gain during this favorable window.

Real-world trading applications

There are several choices for a speculative trader wishing to play this seasonal trend. We will focus on two: 

• iShares U.S. Real Estate ETF (IYR)
• Direxion Daily Real Estate Bull 3X Shares (DRN)

Ticker IYR is the most heavily traded real estate ETF. It tracks the Dow Jones U.S. Real Estate Index, which is slightly different from the S&P 500 Real Estate Index (though trades with a roughly 99% correlation). Ticker DRN is designed to track the daily return for the S&P 500 Real Estate Index x 3.

Triple-leverage ETFs are extremely risky for obvious reasons. However, for those willing to assume the risks they are well-suited for short trading windows such as the one discussed here.

The chart below displays the growth of $1 in IYR during the last five days of the year since it started trading in 2000.

Since its inception, during the seasonal window, IYR has had a 78% win rate, an average annual gain of +0.89%, and a median gain of +1.08%. The worst performance was a loss of -2.1% in 2007.

The chart below displays the growth of $1 in DRN during the last five days of the year since it started trading in 2009.

Since its inception, during the seasonal window, DRN has had a 71% win rate, an average annual gain of +2.49%, and a median gain of +1.09%. The worst performance was a loss of -4.0% in 2009 and 2014.

The table below displays the year-by-year performance of IYR and DRN during the last five trading days of the year.

What the research tells us…

Will the real estate sector register a gain during the last five trading days of 2023? Unfortunately, there is no way to predict. The odds are in this sector's favor if history proves an accurate guide. Historically, 3 of 4 years have shown a gain, and the losing periods have been reasonably manageable. The real questions for traders are "Is it worth committing capital to a somewhat arcane idea?" and "To leverage or not to leverage?" These are questions each trader must answer for themselves.