July Almanac & Vital Stats: Softer in Pre-Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
June 22, 2023
July historically is the best performing month of the third quarter however, the mostly negative results in August and September tend to make the comparison easy. “Hot” Julys in 2009 and 2010 where DJIA and S&P 500 both gained greater than 6% combined with strong performances in 2013, 2018, and 2022 have boosted July’s average gains since 1950 to 1.3% and 1.3% 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 74, Stock Trader’s Almanac 2023).
July begins NASDAQ’s worst four months and is the sixth weakest performing NASDAQ month since 1971, posting a 0.8% 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 capital. This creates a bullish beginning, middle, a mixed week after monthly options expiration and some strength towards the end. However, the last trading day of July has had a bearish bias over the last 21 years. In pre-election years since 1950, early strength has tended to fade around mid-month.
[Recent 21-Year July Market Performance (2001-2021) Seasonal Pattern Chart]
July’s first trading day is the third best performing first trading day of all twelve months with DJIA gaining a cumulative 1668.15 points since 1998. Over the past 21 years, DJIA’s first trading day of July has produced gains 76.2% of the time with an average advance of 0.31%. S&P 500 has advanced 85.7% of the time (average gain 0.35%). NASDAQ has been similarly bullish advancing 81.0% of the time (0.31% 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/or finish late. Since 1980, DJIA, S&P 500, NASDAQ and Russell 2000 have recorded net losses on the day after.
[Pre-Election Year July Table]
Pre-election-year July rankings are something of a mixed bag, ranking #7 for DJIA and S&P 500, averaging gains of 1.0% and 0.9% respectively (since 1950); while NASDAQ (since 1971) and Russell 1000 (since 1979) pre-election Julys both rank #9. NASDAQ has advanced in seven of the last thirteen pre-election Julys. Russell 2000 has advanced in five of its last ten. Despite tech’s and small-cap’s meager pre-election July track record, NASDAQ and Russell 2000 have averaged gains of 1.0% and 0.3% respectively.
[July 2023 Vital Stats Table]
NASDAQ’s 12-Day Midyear Rally
In the mid-1980s tech’s influence in the market began to grow and the market’s focus in early summer shifted to the outlook for second quarter earnings of technology companies. In anticipation of positive results, over the last three trading days of June and the first nine trading days in July, NASDAQ typically enjoys a rally. This 12-day run has been up 29 of the past 38 years with an average historical gain of 2.4%. Look for this rally to begin around June 28 and run until about July 14.
After the bursting of the tech bubble in 2000, NASDAQ’s mid-year rally had a spotty track record from 2002 until 2009 with three appearances and five no-shows in those years. However, it has been quite solid over the last thirteen years, up eleven times with two losses. Last year, NASDAQ faltered during the 12-day span, but eventually took off in the second half of July, up 12.3%.
[NASDAQ Midyear Rally Table]