It has been a great year for stocks. As of July 30, 2019, the S&P 500 Index is up more than 20% so far in 2019. To put that in perspective, since WWII only seven years have been up more than 20% by the end of July, with 1997 being the last time it happened. Here’s the catch: August has tripped up many a good year, and we are on the lookout for potential seasonal weakness this time around as well.
“August has been tough on stocks historically and is actually the worst month of the year over the past 10 years,” explained LPL Senior Market Strategist Ryan Detrick. “Additionally, don’t forget this is a pre-election year. In August 2015, we had the surprise Chinese yuan devaluation, which lead to the first 1,000-point Dow drop ever, while August 2011 had the U.S. debt downgrade.” Both of those unexpected events happened in August and caused massive downside volatility.
Here are a few other takeaways to remember about August:
• The S&P 500 has been down an average of 0.78% in August over the past 10 years, worse than any other month.
• The S&P 500 has been down an average of 0.05% in August since 1950, with only September being worse.
• When it is bad, it is really bad. Since 1990, when the S&P 500 has been negative during the month of August, it was down 4.6% on average, again the worst out of any month.
• Since WWII, the S&P 500 has been up at least 20% by the end of July seven times. 2019 very well could be number eight. August was down 5 of those years and the last time it happened in 1997, the S&P 500 lost 5.7% in August 1997.
• August 1990 is when Iraq invaded Kuwait; August 1997 had the Asian contagion; August 1998 had the Russian debt crisis and Long-Term Capital Management (LTCM) collapse; August 2011 gave us the U.S. debt downgrade; and August 2015 delivered the Chinese currency crisis.
We won’t pretend to know why these significant and out of the blue events seem to always take place in August, but what we will say is with the S&P 500 up 20% for the year and near our fair-value target of 3,000, we are watchful for any developments that could lead to potential market weakness.