It seems that almost every week, another firm raises its target for the S&P 500 as the bull market charges on. Despite the potential for late-summer torpor, August usually maintains a fairly sunny outlook.
Consistent Growth in the S&P 500
The S&P 500 has impressively climbed nearly 20% to 4,589 in the first seven months of this year. Market commentators are confident that there are more gains to come. Citigroup, for instance, predicts that the index will reach 5,000 by the middle of next year. Even a well-known bear recently issued a mea culpa. The rally's path ahead seems promising, considering the recent momentum of stocks and the positive underlying data.
A Historically Mixed Month
However, it's important to note that August historically hasn't been associated with substantial gains. Tom Lee from Fundstrat points out that many North American and European investors tend to be on vacation during this month. As a result, seemingly insignificant news can disproportionately impact a low-volume market. Moreover, August has had a mixed record in recent years.
In summary, while the bull market charges on and the outlook remains fairly sunny, it is worth being cautious about potential hurdles in August due to historically mixed performance and lower trading volumes.
The Challenging Month of August
Since 1950, August has been one of the most challenging months for investors. On average, returns have been just a hair above flat at 0.01%, making it one of the worst months of the year. The average decline, or drawdown, during this period is 3.2%, indicating potential downside risk to the S&P 500, which could drop to approximately 4,430. Notably, August 2022 stands out as one of the more brutal months for the index, with a decline of over 4%.
It is worth considering that the market's significant advance in 2023 may raise concerns about a late summer slowdown. Despite being historically strong years, August tends to be weaker during these periods. Specifically, when the S&P 500 has risen by more than 15% by the end of July, the index usually experiences an average decline of 1.4% in August. This suggests that investors might encounter a temporary roadblock this month.
However, this year's rally could potentially defy expectations once again. In both 2020 and 2021, August saw significant gains for the S&P 500, climbing 7% and 3% respectively, breaking the historically bearish pattern. Additionally, there is the anticipation of a positive surprise with the July Consumer Price Index reading on August 10, providing a crucial update on inflation.
Although August is a cause for concern, it is noteworthy that both the media and many investors have already highlighted it as a seasonal risk. Strangely enough, this widespread attention towards August as a potential risk factor makes us question its likeliness to materialize. As we approach this challenging month, it is essential to keep an open mind and monitor the market's behavior closely.
Don't Let Bad News Spoil Your Beach Trip
Many of us have experienced the disappointment of returning from a relaxing vacation at the beach only to be greeted by an onslaught of bad news. It often feels as though the world has conspired against us, ruining the positive energy we cultivated while soaking up the sun and surf.
But fear not! Despite this recurring pattern, there's no need to cancel your upcoming beach trip out of fear of returning to more distressing headlines. It's time to break free from this cycle of negative anticipation.
Instead, embrace the belief that your vacation should remain a sanctuary, even in the face of possible bad news. There's no denying that keeping up with current events is important, but it's equally vital to prioritize our own mental well-being.
So, leave your worries behind and venture forth to the beach with confidence. Take comfort in the fact that you can control how you perceive and handle bad news upon your return. By reframing your mindset, you can transform your trip into a blissful escape, unaffected by the chaos and negativity that may await you at home.
