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The Worst Trading Months of the Year (Statistically)

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Looking Back on July and Forward to What are Historically Turbulent Months

 

For almost 100 years of stock market performance, the only three-month period that averages in the red has been August, September, and October. Specifically, the S&P 500 has had a negative average return of 0.03% from 1928 through 2020 during these months. July has had the best record statistically, with an average return of 1.58%. September is the worst - this last month of summer has only been green 45% of the time. The average decline in the large-cap S&P 500 index for September has been 1.03%.

 

Looking Back

July 2021 incrementally added to the average gains as it did even better than its historical performance. The S&P 500 gained 2.27% last month. This was the sixth consecutive up month for the index—the longest positive streak since September 2018. The market also racked up 12 consecutive months without a 5% performance dip. The Nasdaq and Dow added 1.2% and 1.3% respectively in July. Utilities, health care, real estate, and technology stocks have been the market leaders.

Volatility increased during the month as concerns the economic recovery may become challenged as some regions in the U.S. and globally may again request or even mandate Covid related business restrictions. This situation continues to be watched closely by market participants.


Looking Forward

The historic numbers for August are not as bad as the combined three-month period (Aug.-Oct.). Statistics show, August has had an average positive return of 0.70% and was up 58.1% of the years. July outperformed its average; if August does the same, it should be worthwhile for equity portfolios. 

Volatility is expected to remain in place through August. Traditionally the summer months are more thinly traded, this exacerbates movement. The moves can be expected to continue from persistent inflation concerns. This is tricky at this point in an economic cycle as positive economic numbers that would ordinarily cause a stock market rally will at times cause a selloff as concerns of tighter money weigh more on the market. Concerns of the Fed tapering well ahead of schedule have been ebbing and flowing. The renewed concerns about the effectiveness of the vaccines to create immunity and the challenge of the recovery to stay on track will create news items and statistical releases that will surely gyrate markets. This could be felt, not as up and down in the market, but instead a running back and forth between so-called “Covid stocks” and the counter trade which are “recovery stocks.”

 

Take-Away

If you’ve stayed in the market, it is hard not to have done well from a historic average standard. July was above average from past Julys and the average for the year-over-year has rewarded those investors with confidence. What we have not experienced and remains to be seen is a downturn in the market. According to the Wall Street Journal, there were 10 million trading accounts opened last year. Presumably, many of these are held by those new to trading. Their experience has only been in an extreme upmarket. Should the market go through several months of negative returns, how will these new investors react. It is clear they have had an impact on the upside throughout last year; the actions of this group must be paid attention to.

 

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Suggested Reading:


Inflations Impact on Stocks, Four Scenarios

Money Supply is Like Caffeine for Stocks


Small-Caps in the Covid-19 and Treatment Space

“Core PCE” Inflation Spike – Highest 3-Month Rate since 1982

 

Sources:

https://www.yardeni.com/pub/stmktreturns.pdf

https://www.wsj.com/articles/new-army-of-individual-investors-flexes-its-muscle-11609329600#:~:text=More%20than%2010%20million%20new,in%20to%20bet%20on%20stocks

 

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