Seasonal Strategies

Almanac Update August 2019: Worst Performing Month of Year Over Last 31 Years

Money flows from harvesting made August a great stock market month in the first half of the Twentieth Century. It 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, S&P 500 and NASDAQ month over the last 31 years, 1988-2018 with average declines ranging from 0.1% by NASDAQ to 1.1% by DJIA. In pre-election years since 1950, Augusts’ rankings improve modestly: #7 DJIA, #8 S&P 500 and #10 NASDAQ (since 1971). Average performance in pre-election years is positive across the board.

Pre-Election Year August Performance Table

Contributing to this poor performance since 1987; 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 and 2013 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.

August 2019 Market Vital Stats Table

The first nine trading days of the month have exhibited weakness while mid-month is better. Note the bullish cluster from August 15-19. The end of August tends to get whacked as traders evacuate Wall Street for the summer finale. The last five days have suffered in 13 of the last 23 years with the S&P 500 up only six times on the penultimate day in the past 23 years. In the last 23 years, the last five days of August have averaged losses of: Dow Jones Industrials, –0.9%; S&P 500, –0.7% and NASDAQ, –0.3%.

On Monday of expiration the Dow has been up 16 of the last 24 years with four up more than 1%, while on expiration Friday it has dropped in 13 of those 24 years, down seven of the last nine years. Expiration week is down slightly more than half the time since 1990, but some of the losses have been steep (-2.6% in 1990, -2.3% in 1992, -4.2% in 1997, -4.0% in 2011, -2.2% in 2013 and -5.8% in 2015). The week after expiration is mildly stronger up 18 of the last 29.