Seasonality

AAA

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!

RELATED TERMS
  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. 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.
  2. Active Trading Fundamentals

    Capitalizing On Seasonal Effects

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

    Cyclical Versus Non-Cyclical Stocks

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

    What are Mutually Exclusive Events?

    In statistics, mutually exclusive situations involve the occurrence of one event that does not influence or cause another event.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  8. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  9. Markets

    Why Gluten Free Is Now Big Business

    Is it essential to preserving your health, or just another diet fad? Either way, gluten-free foods have become big business.
  10. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
RELATED FAQS
  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. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
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!