S&P 500 seasonals turn negative for August-September

Seasonal tendencies are unfavorable for the S&P 500 index in August and September.  Since 1950, the S&P 500 index has shown an average monthly gain of only +0.07% in August, which is the third weakest month of the year.  The S&P 500 index in September since 1950 has then shown an average decline of -0.54%, making it the worst month of the year and the only month with an average monthly decline.

Seasonals then improve in the fourth quarter, with average monthly gains since 1950 of +0.85% in October, +1.69% in November (the best month of the year) and +1.55% in December. 

While the average monthly change in stock prices is important for considering seasonals, it is also important to note the months of the year when unusually large moves tend to happen.  Starting in August, the stock market moves into the most volatile time of the year in August through November.

Since 1950, there have been nine times when the S&P 500 has shown a monthly decline of more than -10%. Six of those nine plunges (i.e., 67%) occurred during the dangerous period of August through November.  The worst months, with two plunges of more than -10%, were September (in 1974 and 2002) and October (in 1987 and 2008). The two other bad months during that time frame, with one plunge of more than -10%, were in August (1998) and November (1973).

Looking at the plus-side, there have been 13 times since 1950 when the S&P 500 index has shown a monthly gain of more than +10%.  Eight of those 13 monthly gains (i.e., 62%) have occurred during the volatile period of August through November.  There have been three gains of more than +10% in October (1974, 1982, 2011) and November (1962, 1980, 2020) and two gains of more than +10% in August (1982, 1984). The other particularly good month for big gains is January, with three gains of more than 10% (1975, 1976, 1987).

Investors over the near-term will be on guard for the tendencies of seasonal weakness and high volatility. The Fed’s rate hike regime, along with concern about weaker global economic growth, could provide the fodder for fresh volatility in the markets.

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