July Almanac: Best Month of Q3, But Tech & Small-Caps Struggle
By: Jeffrey A. Hirsch & Christopher Mistal
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June 28, 2018
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July historically is the best performing month of the third quarter however, the mostly negative results in August and September make the comparison easy. Two “hot” Julys in 2009 and 2010 where DJIA and S&P 500 both gained greater than 6% and a strong performance in 2013 have boosted July’s average gains since 1950 to 1.2% and 1.0% respectively. Such strength inevitability stirs talk of a “summer rally”, but beware the hype, as it has historically been the weakest rally of all seasons (page 70, Stock Trader’s Almanac 2018).
 
July begins NASDAQ’s worst four months and is the third weakest performing NASDAQ month since 1971, posting a 0.4% average gain. Dynamic trading often accompanies the first full month of summer as the beginning of the second half of the year brings an inflow of new funds. This creates a bullish beginning, a soft week after options expiration and strength towards the end.
 
July’s first trading day is the second best performing first trading day of all twelve months with DJIA gaining a cumulative 1139.97 points since 1998. Over the past 21 years, DJIA’s first trading day of July has produced gains 81.0% of the time with an average advance of 0.44%. S&P 500 has advanced 85.7% of the time (average gain 0.42%). NASDAQ has been slightly weaker at 71.4% (0.21% average gain). No other day of the year exhibits this amount of across-the-board strength which makes a case for declaring the first trading day of July the most consistently bullish day of the year over the past 21 years.
 
Trading on the day before and after the Independence Day holiday is often lackluster. Volume tends to decline on either side of the holiday as vacations begin early and finish late. Since 1980, DJIA, S&P 500, NASDAQ and Russell 2000 have recorded net losses on the day after.
 
[Midterm Year July Table]
 
Midterm-year July rankings are something of a mixed bag, ranking #5 for DJIA and #6 S&P 500, averaging gains of 1.1% and 0.7% respectively (since 1950); while NASDAQ (since 1974) and Russell 2000 (since 1982) midterm Julys rank #12. NASDAQ has only advanced in three of the last eleven midterm Julys with an average loss of 2.2%. Russell 2000 has advanced only twice in its last nine with an average decline of 4.5%.
 
July (1950-2017)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 4 5 10 8 11
# Up 43 38 25 19 19
# Down 25 30 22 20 20
Average % 1.2   1.0   0.4   0.7   -0.3
4-Year Presidential Election Cycle Performance by %
Post-Election 2.2   2.1   3.4   3.2   2.8
Mid-Term 1.1 0.7 -2.2 -1.1 -4.5
Pre-Election 1.0 0.9 0.9 0.5 0.3
Election 0.5 0.4 -0.7 0.1 -0.2
Best & Worst July by %
Best 1989 9.0 1989 8.8 1997 10.5 1989 8.2 1980 11.0
Worst 1969 -6.6 2002 -7.9 2002 -9.2 2002 -7.5 2002 -15.2
July Weeks by %
Best 7/17/09 7.3 7/17/09 7.0 7/17/09 7.4 7/17/09 7.0 7/17/09 8.0
Worst 7/19/02 -7.7 7/19/02 -8.0 7/28/00 -10.5 7/19/02 -7.4 7/2/10 -7.2
July Days by %
Best 7/24/02 6.4 7/24/02 5.7 7/29/02 5.8 7/24/02 5.6 7/29/02 4.9
Worst 7/19/02 -4.6 7/19/02 -3.8 7/28/00 -4.7 7/19/02 -3.6 7/23/02 -4.1
First Trading Day of Expiration Week: 1990-2017
#Up-#Down   18-10   17-11   19-9   17-11   16-12
Streak   D1   D1   U5   U5   U5
Avg %   0.1   0.001   0.1   -0.02   -0.04
Options Expiration Day: 1990-2017
#Up-#Down   10-16   11-17   10-18   11-17   8-20
Streak   D1   D2   D2   D2   D1
Avg %   -0.4   -0.5   -0.6   -0.4   -0.6
Options Expiration Week: 1990-2017
#Up-#Down   17-11   15-13   14-14   15-13   14-14
Streak   D1   U6   U4   U6   U3
Avg %   0.4   0.03   0.1   0.01   -0.2
Week After Options Expiration: 1990-2017
#Up-#Down   15-13   13-15   14-14   14-14   11-17
Streak   U2   D1   D1   D1   D1
Avg %   -0.04   -0.2   -0.5   -0.2   -0.4
July 2018 Bullish Days: Data 1997-2017
  2, 9, 12, 13, 19 2, 5, 12, 13 2, 6, 9-13 2, 12, 13, 19, 30  
    19, 30 17-19, 30    
July 2018 Bearish Days: Data 1997-2017
  3, 20, 24, 31 3, 16, 20 3, 20, 31 3, 20, 27