Calendar Quirk?
August and September have historically been unkind to investors as they sport the two worst average monthly returns for the S&P 500 Index.
Since 1970, the average monthly return for the S&P 500 Index (excluding dividends) has been 0.09% during August and -0.96% in September, according to S&P 500 data provided by the St. Louis Federal Reserve.
Many have offered various reasons why August and September have historically underperformed, but few answers are truly satisfying.
Yet, we’d caution against attempting to time any historical seasonal trends that may or may not surface this year. Weakness in August is far from guaranteed. Since 2010, the S&P 500 in August rose in 2012, 2014, 2017, 2018, 2020, and 2021.
Recent Market Movement
In my opinion, the financial media tend to work a lot like sports reporters. They don’t predict what’s coming, they report on what just happened. Often they scramble to come up with a reason. Just a couple of months ago, they hyped up fears about surging inflation. Now they’re stoking fears that a recession is imminent. I’ve been saying all along, that my belief is that even if the Fed sends us into a recession, it is likely to be a shallow one since the economy has been strong – nothing like what happened in 2007-2008. Recessions come pretty regularly and this one, if it comes, should be no surprise. The Fed has been trying to slow down the economy to battle inflation. Now that this is happening, people are screaming about it.
In reality, this will bring lower rates and that will be favorable for corporate profits and our government’s ability to manage debt. It is not unusual for markets to fall for several months once the Fed starts reducing rates. This is mostly because of the slowdown or recession that it causes, but it typically sets the stage for more sustainable growth.
- A correction in the stock markets is long overdue since they have been on a tear for quite a while.
- According to a recent Reuters report, since 1981, the S&P 500’s intra-year, peak-to-trough drawdown has averaged in the range of 13-14%. -- And yet long-term growth has been unmistakable.
- No one can accurately and consistently predict when those highs and lows are going to happen.
- Riding those ups and downs and keeping a long-term investment horizon has been the best strategy
What is happening?
There IS a lot going on:
- Economic data is weakening but it’s not terrible – (I’m pretty sure that was the goal here in order to battle inflation.)
- Japan, who saw a boom since they never raised interest rates when the rest of the world did, is now triggering global selling pressure as the situation unwinds.
- The chances of an all-out war between Israel and Lebanon/Iran are rising and worry over how the US will be dragged into it is increasing.
- The US election landscape has changed dramatically.
Only time will tell, but I believe this is a natural pullback stoked by the combination of months of strong markets offset by global economic and political events. It’s times like these that many long-term investors see as buying opportunities. If you are considering an addition to your investment portfolio, the challenge is always, “What is the best time to invest?” That’s a question no one can answer. The best bet is usually to add money gradually so as to avoid surprises.
We always recommend that you stay with a well-diversified portfolio that helps mitigate market downturns but also keeps you positioned to participate in market upswings.
Don't lose track of your financial plan. Your strategy should always align with your financial goals, investment timeline, and risk tolerance. While we won’t discount the possibility of volatility over the next two months (for that matter, we’d never dismiss the possibility of a pullback in any season), we encourage you to keep your focus on your long-term financial goals.
Whatever the case, the stock market has always been a rollercoaster and it likely always will be. Despite the ups and downs along the way, patient, long-term investors are usually very happy in the end.
We trust you have found this review to be informative. If you have any inquiries or wish to discuss other matters, please don’t hesitate to contact me or any team member.
As always, thank you for choosing us as your financial advisor. We are honored and humbled by your trust.