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August has been a tough month for stocks - but don't sweat it

Michael Santoli
Michael Santoli

In other markets, they’ve been cancelling trading to keep prices from falling too fast. Here in the American stock market, people can trade all they want - yet the indexes have hardly budged. 

China’s heavy-handed moves to halt trading in many stocks and restrict selling has now gone further, as authorities there froze a Chinese account of Chicago trading giant Citadel, while they villain-ize foreign short sellers. 

The Greek stock market opened today for the first time in five weeks and promptly shed 20% of its value – a move surprising, if at all, for how relatively modest the losses were. 

And a few years ago, the Chicago Merc quit trading pork bellies, which deprived futures traders of one of the most reliable and quaint midsummer market traditions: The traditional  “BLT season” surge in belly prices as tomatoes ripen. (Yes, that was a real thing, on which people risked – and made - actual money.) 

The stock market here, though, remains stalemated, with the Dow Industrials’ total return for the year up just half a percent, and the S&P 500 finishing July within a single point of where it closed February. 

Even if we can no longer trade BLT season, though, the market conversation is noisy with talk of seasonal patterns – which is common at the turn of a month. 

So we greet the week with reminders that over the past 20 years, August has been the worst month, on average, for stock returns. And, as market analyst Ryan Detrick points out, when it’s been down in a given year, the month tends to be down sharply. Over the past two decades, the average decline of the nine losing years is 4.7%. 

This is worth keeping in mind – mostly because it’s worth keeping pretty much everything in mind, to the extent possible. But it’s hardly a reason for action – mostly because no nugget of past market behavior is generally worth acting on alone. 

But keep this in mind, too: The market over the past year hasn’t flattered the almanac-style of investing that follows historical patterns. This year January was down big, contrary to the usual strength. February had a nice rebound instead of a typical drop. And March – over the long term a very strong month – was down quite a bit. 

On a broader canvas, one of the handy little good-luck charms that bullish forecasters were wearing out entering the year was this: The third year of a presidential term is usually quite strong, and stocks have also never been down in a year ending in 5. 

We’ve wandered pretty far off that script, even if the S&P is holding a couple of percent into the black, seven months into the year. 

Slicing and massaging historical data has never been easier, and the demand for something to say about the market’s near-term chances has never been greater given the limitless streams of social and digital-media.  

It’s not that these seasonal quirks don’t work any more because they’ve become too popular, as some have argued. More that they never much worked in any reliable way, and the greater attention on them just makes that more clear to more people. I always like to say, at best seasonal cues speak to climate, not weather. They highlight broad tendencies, but can't help you decide what to wear today.

Keep in mind too, as far as the current August goes, that we’ve entered it with investors already a bit on edge, having pulled an unusually large chunk of money from stock funds in recent weeks and registering plenty of anxiety in surveys. That’s hardly the blithe display of greed that someone wishing for the market to fail wants to see. 

So if stocks do indeed falter this month, it might be because a data-dependent Fed has made the market acutely data-dependent – and the data are far from clear in their message. 

Or because the credit markets keep softening up. Or because the narrow leadership of the market tires and isn’t spelled by sectors that have already pulled back. Or because the flattening yield curve undercuts financial stocks. Or…just because. 

But any weakness in coming weeks won’t have much of anything to do with the fact that the calendar clicked over to August.