DEFINITION of 'Seasonality'

A characteristic of a time series in which the data experiences regular and predictable changes which recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.

Note that seasonal effects are different from cyclical effects, as seasonal cycles are contained within one calendar year, while cyclical effects (such as boosted sales due to low unemployment rates) can span time periods shorter or longer than one calendar year.

BREAKING DOWN 'Seasonality'

Seasonality can be seen in many time series, and it's more common than you might think. For example, if you live in a climate with cold winters and warm summers, your home's heating costs probably rise in the winter and fall in the summer. You would reasonably expect the seasonality of your heating costs to recur every year. Similarly, a company that sells sunscreen and tanning products would see sales jump up in the summer, but drop in the winter. Companies that understand the seasonality of their business can time inventories, staffing and other decisions to coincide with the expected seasonality.

It's important to remember the effects of seasonality when analyzing stocks from a fundamental point of view. For example, if you assumed a sunscreen company was going to earn as much in the next three quarters as it did during the recent summer quarter, your earnings estimates would likely be way off the mark!

  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Sell In May And Go Away

    A well-known trading adage that warns investors to sell their ...
  3. Halloween Strategy

    An investment technique in which an investor sells stocks before ...
  4. Peak

    The highest point between the end of an economic expansion and ...
  5. Contraction

    A phase of the business cycle in which the economy as a whole ...
  6. Trough

    The stage of the economy's business cycle that marks the end ...
Related Articles
  1. Stock Analysis

    How UPS Plans to Benefit from Its Coyote Acquisition

    Understand the business models of UPS and Coyote Logistics. Learn about the top four ways in which UPS will benefit from the acquisition of Coyote Logistics.
  2. Investing

    The Ups And Downs Of Investing In Cyclical Stocks

    This strategy can be profitable but only if you know when to dump these stocks.
  3. Active Trading Fundamentals

    Capitalizing On Seasonal Effects

    We show you how to take advantage of periodic trends in the equity markets.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  6. Economics

    How Do Companies Forecast Oil Prices?

    Read about the different forecasting methods that businesses use to predict future crude oil prices, and why it's so difficult to guess correctly.
  7. Technical Indicators

    Explaining Autocorrelation

    Autocorrelation is the measure of an internal correlation with a given time series.
  8. Term

    Public Goods & Free Riders

    A public good is an item whose consumption is determined by society, not individual consumers.
  9. Mutual Funds & ETFs

    Top 3 Consumer Cyclical Mutual Funds

    Obtain information on, and analysis of, some of the best performing mutual funds that offer exposure to the consumer cyclicals sector.
  10. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  1. To what extent do seasonal factors influence the utilities sector?

    Seasonal factors have a large impact on the utilities sector, with a significant increase in demand during the summer and ... Read Full Answer >>
  2. How much does seasonality affect the net sales figures of companies, such as retailers?

    Seasonality affects both sales and net sales figures of companies in different ways. For some companies, seasonality has ... Read Full Answer >>
  3. What are the most popular companies in the retail sector?

    Examples of popular companies in the retail sector include Costco, Nordstrom Rack, J. Crew, Sephora, Ikea, The Container ... Read Full Answer >>
  4. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  5. Are there significant seasonal patterns in the electronics sector?

    There is strong seasonality in the electronics sector, with sales of nearly all kinds of electronics – computers, digital ... Read Full Answer >>
  6. Why is the TTM (trailing twelve months) important in finance?

    Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. ... Read Full Answer >>
  7. Why would you look at year-over-year rather than quarterly growth?

    Growth rates are an important metric for evaluating financial and economic data. Annual growth rates are more commonly cited ... Read Full Answer >>
  8. How does seasonality affect the financial services sector?

    The seasonal trends in financial services vary depending on which subset of financial services is being considered. For example, ... Read Full Answer >>
  9. How does seasonality affect the forest products sector?

    The concept of seasonality comes from the analysis of time series data. A certain data set demonstrates characteristics that ... Read Full Answer >>
  10. Does the consumer price index (CPI) correlate with the change in price of goods and ...

    It is unlikely that the consumer price index (CPI) measures any one individual's exact experience with price changes. Though ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!