The stock market has rallied so far this year, but if you go by the last few decades, expect the month of August to be lackluster.
According to data compiled by Stock Trader’s Almanac, August is the second-worst month for the S&P 500 (^GSPC) and the Nasdaq (^IXIC), and the worst for the Dow Jones Industrial Average (^DJI) in 35 years.
The site’s analysis also shows that August, ahead of a presidential election year, portends a particularly weak month, as the Dow Jones Industrial Average, the Nasdaq, and the S&P 500 have all declined over the past three pre-election years (2019, 2015, and 2011).
Dating back as far as 1950, the S&P 500 was flat on average in August, posting an average gain of 0.6%, according to data compiled by LPL Financial.
And with stocks in overdrive so far in 2023 and relatively weak seasonal trends ahead, “we suspect that this could be a logical place for a pause or a dip in this rally,” Adam Turnquist, chief technical strategist at LPL Financial, told YahooFinance.
“September sees seasonality get worse, historically the worst month for the market,” he added.
Source: Bloomberg
This August had already got off to a slow start, with the Nasdaq and S&P 500 down about 2% and the Dow down about 1%.
On Wednesday, the 10-year Treasury yield jumped to a new 2023 high of 4.12% after rating agency Fitch downgraded the US government’s credit rating.
“When you have higher interest rates, it puts pressure on growth stocks, technology and communications. All of these areas will come under pressure from higher interest rates,” JC Parets, founder of Allstarcharts.com, told Yahoo Finance Live this week.
“So you kind of have the perfect storm, regardless of what these Fitch people say,” he added.
The equity market rally was initially primarily focused on the technology sector (XLK), communications services (XLC) and consumer discretionary (XLY).
It widened in June and July after the Dow Jones Transportation Average peaked around the same time the Dow Jones Industrial Average hit a 52-week high.
The story goes on
Parets added, “If these tech stocks and megacap stocks come under pressure, it means indices will remain subdued for the foreseeable future. Some of these areas like energy … like materials and industrials have much smaller weights in these indices – will they be able to withstand the selling pressure from these growth stocks?”
Ines is Senior Economic Reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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