As we noted last week, since 1988, the month of August has tended to be one of the weakest on balance. According to the Stock Trader’s Almanac, the first 9 trading days of August are historically weak as well. Now if we look at the decennial cycle (10-year increments) back in time, in 2011 the month of August was especially weak as the S&P 500 hit a high on August 1st at 1307.38 only to be crushed by just over -15%, finding the months low on August 9th at 1101.54. The rest of the month was somewhat volatile finding a rally into mid-month 1208.47 on the 17th. More downside came by the 22nd as the S&P 500 put in a higher low of 1121.09. The S&P 500 finished that August with a high on the 31st at 1230.71 but still off significantly from the start of the month. Going back another 10 years to 2001 the high for the month was hit on August 2nd at 1226.67 with a sell-off into the 10th at 1169.55, next a high on the 14th of 1198.79, a low on the 22nd at 1153.34, a high on the 27th at 1186.85, and a final low on the 31st at 1126.38, which was 100 points lower than the beginning of the month. Moving another 10 years back in the cycle 1991 we see an S&P 500 that was mostly sideways with some mid-month weakness. Moving back another 10 years to 1981 the S&P 500 entered the month at 130.92 and subsequently hitting a high on the 5th at 133.39, a low on the 10th at 130.83, a high on the 12th 135.18 with a final low on the 28th at 122.85. From July 1981 closing level to August 1981 closing level the S&P 500 was off - 5.22%. So to recap on the decennial cycle, we have 3 of 4 years ending in the number 1 that were off for the month of August: 2011, 2001, and 1981 with 1991 being pretty much flat performance.
So what can we infer from all this? On balance a down month with general weakness at the beginning of the month (about 9 trading days), strength into the middle section of the month, and then weakness once more into the end of the month if these patterns on the decennial cycle are valid. Remember at the end of August, the Kansas City Federal Reserve hosts its 2021 Jackson Hole Economic Symposium which has in the past generated enough headlines to move markets. Remember also that August is a popular vacation month where top trading talent is often absent from the trading desks of Wall Street, so we might experience a higher degree of volatility as the month proceeds. On a news related basis, the market currently appears to be assessing the COVID-19 Delta variant and its potential impact and risk for another lockdown scenario. This virus is said to have R naught rating (a measure of transmissibility) much higher than the original virus. Stay wary and stay safe.
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