The stock market has soared so far this year, but expect the month of August to be lackluster if the past several decades are any guide.
August is the second-worst month for the S&P 500 (^GSPC) and Nasdaq (^IXIC), and the worst for the Dow Jones Industrial Average (^DJI) over the last 35 years, according to data compiled by Stock Trader’s Almanac.
The site’s analysis also shows the August before a presidential election year points to a particularly weaker month, as the Dow Jones Industrial Average, the Nasdaq, and S&P 500 all declined in the last three pre-election years: 2019, 2015, and 2011.
Dating back even further to 1950, the S&P 500 has historically been flat on average in August and generated median gains of 0.6%, according to data compiled by LPL Financial.
And with stocks on a roll so far in 2023 and relatively weak seasonal trends ahead, “we suspect this could be a logical spot for a pause or pullback in this rally,” Adam Turnquist, chief technical strategist at LPL Financial told Yahoo Finance.
“Seasonality only gets worse in September, historically the worst month for the market,” he added.
This August has already gotten off to a weak start, with the Nasdaq and S&P 500 about 2% lower and the Dow losing roughly 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 rates that puts pressure on growth stocks, technology, communications. All of those areas are going to be under pressure with higher interest rates,” JC Parets, founder of Allstarcharts.com, told Yahoo Finance Live this week.
“So you sort of have the perfect storm, regardless of what these Fitch people say,” he added.
The stock market rally was initially mainly focused on the Tech Sector (XLK), Communication Services (XLC), and Consumer Discretionary (XLY).
It broadened out in June and July after the Dow Jones Transportation Average hit 52-week highs around the same period of time the Dow Jones Industrial Average also hit a peak.
Parets added that “if these tech stocks and megacap stocks will be under pressure, that means that the indexes are going to remain muted for the foreseeable future. Some of those areas like energy… like materials and industrials, that have much lower weightings in those indexes – are they going to be able to withstand the selling pressure coming from those growth stocks.