August Is Not A Great Month For Stocks

We have entered now traditionally the weakest season for stocks.  August through early October has often seen stocks behave at their worst.  Most investors, if they were asked, would probably say that October is the worst month.  Data points to September actually been the bleakest time for equities.  However,  Jeff Hirsch over at the Almanac Trader points out that August is the worst month in post election years. 

Hirsch goes on to list some of the reasons that has made August so bad.  He notes economic turmoil in 1987 and  Iraq's invasion of Kuwait in 1990 as another example of events that sent stocks down.  We could point to others but I think a major factor has to be that in August the financial world retires to wherever their little spit of vacation nirvana happens to be, and the "A" team is usually not manning the trading desks when things turn sour.  Since often these events appear out of the blue, the first reaction of those manning the battle stations is likely to be to try and sell.  

Now of course nobody knows what's going to happen this month in regards to something arriving unexpected.  However, there's a list of things that could turn ugly quickly this month if events took a wrong turn.  Korea and Venezuela come out on top of the list and there's always the possibility of a slip-up in the mid-east.  

Again, that's not to say something like this is about to occur and there are plenty of Augusts where stocks did nothing or actually went up.  But I have always been a big believer in market seasonality and I think it is vital to understand where we are in the yearly cycle in order to put some context on an event should it occur.  That may be even more important in a market like we're seeing now that has rallied hard in the past few months and is currently overbought.

Back Monday

Link:  Almanac Trader-"August, Worst Month of Post-Election Year"