Money flows from harvesting made August a great stock market month in the first half of the Twentieth Century. August was the best month from 1901 to 1951. In 1900, 37.5% of the population was farming. Now that less than 2% farm, August is amongst the worst months of the year. It is the worst DJIA and S&P 500 month since 1987 with average declines of 1.0% and 0.8% respectively. August is also the worst month for NASDAQ (–0.1%) over the same time period.
Contributing to this poor performance since 1987 was the shortest bear market in history (45 days) caused by turmoil in Russia, the Asian currency crisis and the Long-Term Capital Management hedge fund debacle ending August 31, 1998 with the DJIA shedding 6.4% that day. DJIA dropped a record 1344.22 points for the month, off 15.1%—which is the second worst monthly percentage DJIA loss since 1950.
Saddam Hussein triggered a 10.0% slide in August 1990. The best DJIA gains occurred in 1982 (11.5%) and 1984 (9.8%) as bear markets ended. Sizeable losses in 2010, 2011, 2013 and 2015 of over 4% on DJIA have widened Augusts’ average decline. A strong August in 2014 of S&P 3.8% and NASDAQ 4.8% preceded corrections of 7.4% and 8.4% respectively from mid-September to mid-October.
In midterm years since 1950, Augusts’ rankings improve slightly: #8 DJIA, #9 S&P 500, #11 NASDAQ (since 1974). Average losses are -0.7% for DJIA, -0.4% for the S&P 500 and -1.8% for NASDAQ. DJIA suffered double-digit losses in 1974, 1990 and 1998.
The first nine trading days of the month have exhibited weakness while mid-month is strongest. Note the bullish cluster from August 15-17. The end of August tends to get whacked as traders evacuate Wall Street for the summer finale. S&P 500 has been up only six times on the next to last day in the past 22 years. In the last 22 years, the last five days of August have averaged losses of: Dow Jones Industrials, –0.9%; S&P 500, –0.8% and NASDAQ, –0.4%.