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August beats summer doldrums in the stock market

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Yahoo Finance's Myles Udland and Brian Sozzi discuss how the stock market fared in the month of August, compared to past performances.

Video Transcript

BRIAN SOZZI: Yeah. And you know, this segways, Myles, I think. So you're seeing Zoom shares absolutely really just slaughtered here. And it's unclear when that short term bottom is in. Yet, the market continues to go up. And that's something you wrote a lot about in today's "Morning Brief."

MYLES UDLAND: Yeah. Look, I mean, every August-- and we're going to do it again next August, when we can have this conversation August 2022--

BRIAN SOZZI: I'm looking forward to having that convo with you, Myles, next year--

MYLES UDLAND: That's right.

BRIAN SOZZI: --in August.

MYLES UDLAND: That'll be a-- that'll be a good one.

So you know, August tends to be the worst month of the year. And you know, some of our old friends, Ryan Dietrich, Keith Lerner, you know, pile in on on this one. So I went back to a post that Ryan wrote over at LPL at the beginning of the month. And in August, over the last 10 and 20 years, returns to the S&P have been negative. And they've been even more negative, almost 2%, in years that follow a presidential election, in the month of August. Only September does worse on that count.

Well, right now, we're looking at a gain of around 3.5% for the S&P 500 in the month of August. So we've seen a reversal on that. We've also seen the S&P 500, as I mentioned in the open, make 13 record closes this month. Any positive gain today will mark a 14th. This will be the seventh straight month of gains for the S&P 500.

Which then gets to the other side of this story, and it's sort of the theme we come back to. And you've got to play the market as the market presents itself. So history, 2011, 2015, to some extent last year as well fits into this bucket. Tough August periods, that fits into that average return.

But the more potent force that the market has come up against is in the second year of bull markets, the average return for the S&P 500 is about 13%. The second year of bull markets, you tend to see more volatility, but you tend to see gains. Stocks, stock markets that go up or that are going up, you know, continue-- tend to continue going up, right? And I think that that is the force that is obviously overpowering any negative seasonality.

Keith Learner, friend of the program, out in the inbox this morning. Sozzi, I know you flagged this for us. Been 14 years where the market's up more than 15% through August. This is going to be another one of those. The market tends to gain over the balance of the year. It's been up 12 of the last 14 times in the rest of the year.

Another way of just saying, if the stock market has gone up a lot, it takes more than people worry-- you can't just be like, oh, well, it's gone up too much. Up too far, too fast is not good enough in this environment, right? We're at the beginning of a bull market. And I think what we've seen time and time again this year in the market is, you know, that wall of worry is the most potent force driving stocks higher. And you know, a weak market is not a market that makes 13 record highs in a single month. It's just not-- that's just not the setup here.

BRIAN SOZZI: No, well said. And you know, just staying in this, because you're clearly in the market zone this morning. A good tweet from a friend of the show Liz Ann Sonders from Schwab this morning. And I know our producer Val Caval is very excited that I came up with this tweet and she tweeted this. I know she's very keen in highlighting this here.

Weak balance sheet stocks' strong performance relative to healthier counterparts has completely faded this year. The ratio is now back to its early January level as investors embrace quality. So you know, we're seeing the market rally. Heck of a run here.

You know, I just tweeted out a stock chart of Google. I mean, it's up 65% year to date. Closing in on its eighth straight monthly gain. And you're seeing investors really gravitate towards quality stocks. They're willing to pay up to own quality. They're not out there chasing crap.

MYLES UDLAND: Yeah. I mean, again, I think, you know, when you that in the beginning of last year, the deleveraging was the emphasis on deleveraging. Certainly a lot of dynamics with respect to small caps. With respect to the mean stocks, right, that gets into that weaker balance sheet outperformance perhaps we saw earlier this year. But we're sort of getting back to our nitty now when you see the NASDAQ outperforming, you know, over the last handful of sessions. It certainly speaks to that as well.