August Almanac & Vital Stats: Can Be Challenging in Pre-Election Years By: Christopher Mistal & Jeffrey A. Hirsch | July 20, 2023 | Email | Print

Money flows from harvesting made August a great stock market month in the first half of the Twentieth Century. It was the best DJIA month from 1901 to 1951. Now it is the worst DJIA and second worst S&P 500, NASDAQ, Russell 1000, and Russell 2000 month over the last 35 years, 1988-2022 with average performance ranging from 0.1% by NASDAQ to a –0.9% loss by DJIA. Last year, DJIA, S&P 500, NASDAQ, and Russell 1000 all declined over 4% in August. 

 

Contributing to this poor performance since 1988; the second 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 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, 2015 and 2022 of over 4% by DJIA have widened its August average decline.

 

 

In pre-election years since 1950, Augusts’ rankings improve modestly: #8 DJIA, #9 S&P 500, #10 NASDAQ (since 1971), #11 Russell 1000 and #10 Russell 2000 (since 1979). Average performance in pre-election years is positive except for Russell 2000. However, all five indexes have declined in August during the last three pre-election years, 2019, 2015 and 2011. It would appear, August’s pre-election year advantage is fading.

 

 

Historically, the first eight or nine trading days of the month have exhibited weakness while mid-month has been better. This pattern holds in pre-election years with greater magnitude (dashed lines). Note the bullish cluster from August 15 through 17. This strength is visible above on trading days 11, 12 and 13. The end of August tends to be softer when traders evacuate Wall Street for a summer finale. The last five days were generally bearish from 1996 to 2013 but have been positive in seven of the last nine years. In 2022, S&P 500 dropped 4.5% in the last five trading days of August. S&P 500 has also only been up nine times on the penultimate day of August in the past 27 years.

 

On Monday of monthly options expiration DJIA has been up 18 of the last 28 years with four up more than 1%. Monthly expiration Friday has been mixed recently with 18 declines in 33 years. More recently, DJIA has been up in four of the last five years after declining in seven of the previous eight. Expiration week is down 20 times in 33 years since 1990, with some sizable losses; –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 stronger up 20 of the last 32.