Are the end of summer seasonal patterns expected to dampen the latest rally we have experienced in the stock market?
Looking back over the last 10-years, August price performance, on average, tends to generate negative results for the S&P 500 Index. Even though the data suggest an increased likelihood for lackluster price returns over the next month for stocks, there are areas in the S&P 500 Index that are likely to outperform the broad equities index based on seasonal patterns, for example, the technology sector.
Since 2006, the S&P 500’s average price change for August has been -0.65%, with the best return 3.77% and the worst -6.26% (see the table below). Should the likelihood of a seasonally bearish outcome for stocks in August cause us to throw in the towel and settle for potentially negative price performance? We would say no, because there is a way to identify certain areas within the S&P 500 Index that have historically outperformed the index in August. Using a concept called relative strength, one is able to compare the price performance of an underlying sector or industry group to the broad-based index in order to determine the strongest performers compared to the overall market.
Going back to 2006, the sectors and industry groups that, on average, outperformed the S&P 500 Index in August are highlighted in green in the table; and those that underperformed the index are highlighted in red.
Since 2006, the information technology sector’s average price change for August has outperformed the S&P 500 Index by 0.95% with a high of 6.01% and a low of -2.57% (based on the S&P 500 GICS sector indexes). Going a little deeper, the internet and retail sub-industry index has outperformed the S&P 500 Index, on average, by 2.79% in August, with a high of 15.52% and a low of -6.21%.
So, even though the seasonal price pattern for the S&P 500 Index in August tends to be negative, relative strength analysis helps reveal potential silver lining opportunities that may help mitigate summer weakness.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Stock investing involves risk including loss of principal.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Global Industry Classification Standard (GICS): A standardized classification system for equities developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor’s. The GICS methodology is used by the MSCI indexes, which include domestic and international stocks, as well as by a large portion of the professional investment management community. The GICS hierarchy begins with 10 sectors and is followed by 24 industry groups, 67 industries and 147 sub-industries. Each stock that is classified will have a coding at all four of these levels. The 10 GIC Sectors are as follows: energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, telecommunication services, and utilities.
This research material has been prepared by LPL Financial LLC.
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