E August Is The Worst Month For Stocks

Market Outlook

Jeff Hirsch in the Almanac Trader discussed a dispute regarding the market’s historical track record during the month of August. Some market watchers claim it is one of the best months of the year, but others say it is the worst. The correct answer is August used to be the best, but now it is the worst. Based upon DJIA data starting in 1901, August once averaged a handsome 2.3% gain (1901-1949) and was the top DJIA month of the year, up 35 times in 48 years. From 1950 to 2016, August is the third worst month, up 37 times in 67 years and over the past 30 years (1987-2016) August has been the worst DJIA month with an average 1.1% loss. In the chart below plots three seasonal patterns using various beginning and ending date ranges. Focusing on the blue line, this is what DJIA did between 1901 and 1949. Back then farming and agriculture was a significant portion of the U.S. economy and thus the stock market. Harvest season and its cash flows was a prime driver of DJIA. The market generally started the year off quietly drifting sideways to slightly higher until making a leap higher through July and August to an early September high just as harvesting season was also reaching a peak.

Around 1950, just after the end of WWII, farming and agriculture’s influence over the market began to wane as the middle class began to blossom and the modern day consumer appeared. Fewer and fewer people were living and working on farms, instead, they choose the city and suburban life. Instead of working the fields, people are now on vacation in August. This caused a shift in the market’s behavior as well, represented by the green, post-WWII (1950-2016) line. Over the past 67 years, DJIA has been reaching a seasonal high in May just as summer begins and the school year nears an end. DJIA then wanders throughout the summer months and into mid-Autumn before rocketing higher to finish the year. Note how little the pattern has changed over the past 29 years (red Line) when compared to the green line.

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