August Weakness

29Jul11

The end of July is nigh. This is a quick look at how the U.S. market has performed historically in August.

First the (misleading) numbers…

From this 30,000 foot view, August has performed almost perfectly in line with the average month over the last 80 years.

But averages can be misleading because they say nothing about how consistent an observation has been or whether it’s waxing or waning, so below I’ve assumed a trader was only long the S&P 500 in August (red) versus the average month (grey) each year since 1930.

[logarithmically-scaled, growth of $10,000]

As the graph above shows, almost all of August’s gains (literally) came between 1930 and 1936. To make this more clear, below I’ve run the same test, this time beginning in 1937.

[logarithmically-scaled, growth of $10,000]

Clearly, August has exhibited consistent weakness (relative to the broader market) since 1937.

Like all seasonality plays this one has by no means been a sure thing and doesn’t by itself justify a trade, but I’m calling the calendar month bias for August as possibly UNDERPERFORMING.

See the monthly seasonality map for daily seasonality predictions in August.

Happy Trading,
ms

Geek note: all returns are dividend-adjusted (dividends interpolated from quarterly data).

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