Despite all the excitement this past month over tariffs, trade deals, the One Big Beautiful Bill, the Fed vs. Trump, a volatile earnings season and the march to new highs, market action has been rather calm. Today marks the 21st day of a low volatility streak for the S&P 500 where the index has not gained or lost 1% or more on any day. Since the U.S. carried out a major airstrike on Iran’s nuclear facilities on June 22, the S&P 500 is up 6.8%. But it has not had a 1% move in either direction since June 24.
NASDAQ’s Midyear Rally delivered Christmas in July once again with the NASDAQ Composite gaining 3.3% over the 12-day period that includes the last 3 trading days of June and the first 9 of July. For comparison, at today’s close NASDAQ is up 3.4% for the month of July so far. As you can see in the S&P Post-Election Year Seasonal Chart below, the midyear rally tends to run a bit longer through the end of July and even into early August in the post-election year, before the usual summer retreat in August and September.
In fact, as you can see in the chart below comparing S&P 500 and NASDAQ seasonal patterns during the Worst Four Months July-October in all years vs. post-election years, the summer setback is steeper in the post-election year.
Should this summer rally continue through the end of July it could create what we call a “
Hot July Market.” The original research on this “Hot July Market” phenomenon was by our illustrious founder and creator of the
Stock Trader’s Almanac, the late Yale Hirsch, he defined a “Hot July” market as a gain of 3% or more for the Dow.
Every DJIA “Hot July” since 1950 was followed by a retreat that averaged 7.0% from July’s close to a subsequent low in the second half of the year. The worst decline was 32.4% in 1987 while the mildest DJIA decline was 0.1% in 1958. Historically, “Hot Julys” have led to better Autumn buys as many of the subsequent lows occurred in September and October.
Last year’s Hot July was followed by a milder and shorter correction of 5.2% from the end of July to the summer low on August 5 (from the mid-July high it was 6.1%). The Dow is currently up 1.4% for July 2025. For the Dow to be up 3% for July it would need to log a net gain over the next five trading days of 1322.85, which is about 265 points per day. Not out of the question. Should the market rally enough to drive the Dow up 3% for the month of July it would increase the likelihood of a summer correction.
August & September Are the Worst
Over the last 35 years, August and September have been the worst performing months of the year. Average performance has been mixed in August with DJIA and S&P 500 recording losses of 0.9% and 0.6% respectively while NASDAQ has eked out a meager 0.1% gain. September has been red across the board for DJIA, S&P 500, and NASDAQ.
How Low Volatility Streaks End Matter
As noted earlier, today was the 21st trading day in a row where the S&P 500 failed to move 1% or more in either direction. The last time the market went through a similar low volatility streak ended on December 18, 2024, after 22 trading days with a loss of 2.9% on the day. Stocks struggled over the next several months, reaching a marginal new high in February before succumbing to a steep correction in early April on tariff fears. We did not take out those old highs until the end of June.
This low volatility streak would seem like a significant feat, especially this year. However, S&P 500 has matched or exceeded its current low volatility streak 130 previous times since 1950. The longest streak was an amazing 167 days from the end of February to late October in 1963.
On average, the S&P 500 did not fare well immediately after past low volatility streaks ended recording losses in the first two weeks (10 trading days) after (bright green “All” line in chart below). By one month (around 21 trading days) later S&P 500 had generally turned the corner and began its upwards march once again. On average performance remained positive 3, 6, and 12 months later.
Delving deeper into the data we found that the longer a historical low volatility streak persisted, generally the weaker S&P 500 was during the 3 months after the streak ended. Past streaks that lasted between 26 to 30 trading days, or longer than 40 trading days, were noticeably weaker.
When past streaks are separated by how they ended, the difference in S&P 500 performance is eye-popping. Streaks that ended with a gain were bullish while those that ended with a loss were generally bearish.
This rather orderly rise triggered our NASDAQ Best 8 Months Seasonal MACD Sell signal on July 14. Solid gains were logged in our QQQ and IWM positions from our reentry on April 17 after getting stopped out in the early-April tariff tumble. Over the roughly 3-month period our QQQ position was up 28.3% and IWM gained 22.1%.
The weakest two months of the year are around the corner and the market seems primed to take a breather. Whatever your politics are, you must admit the Trump administration has logged a series of wins on the geopolitical front, with tariff and trade deals and getting legislation through congress. So that begs the question, what’s next? We do not expect any major decline over the next few months, but we suspect a dearth of news from the White House and Wall Street will coincide with the usual seasonal slump.
The market is somewhat overbought and appears to be running out of gas as the uptrend has been flattening out over the past few weeks. This is the time of the year many market participants, institutional and retail, tend to step away from the market and shore up positions, creating a trading vacuum that often results in a market slide. When they come back in September there is often a push to restructure portfolios and do some window dressing, especially at large institutions, that creates more selling pressure toward the end of Q3. So, enjoy your summer and keep your powder dry, we are likely to get a better buying opportunity over the next few months.
Pulse of the Market
DJIA did make a decisive move higher joining NASDAQ’s midyear rally. DJIA’s 50-day moving average also climbed back above its 200-day moving average on July 15 forming a traditionally bullish golden cross. However, DJIA has yet to close at a new all-time high. DJIA came within 3.75 points on July 23 (1). Should DJIA fail to break out soon, the summer rally could soon falter as historically weak August (and September) will be arriving soon.
Despite DJIA gains earlier this week, both the slower and faster MACD indicators are negative (2). Both turned negative around mid-July and only modestly improved earlier this week. Weakening technical indicators are also suggesting the wait for new all-time closing highs for DJIA could continue.
DJIA logged its fourth Down Friday/Down Monday (DF/DM) of the year (3). Historically, DF/DM occurrences have been market inflection points (page 78 of 2025 Almanac) that have frequently been followed by weakness sometime during the next 90 calendar days. It is not uncommon for DJIA to bounce higher immediately after a DF/DM, like it did earlier this week, but the bounce has tended to be of brief duration. At a minimum it would appear traders’ market conviction may be waning even though S&P 500 (4) and NASDAQ (5) have repeatedly closed at new all-time highs in July.
Weekly market breadth (6) favored Decliners last week, ending July 18, even as S&P 500 and NASDAQ both logged a weekly gain. Historically mixed readings like this have occurred due to sector rotation and/or waning participation in the rally. If participation is faltering the rally could be coming to an end. However, if Weekly Advancers can reclaim the majority and the indexes hold onto weekly gains, this week, it would be less of a concern.
Weekly New 52-week Highs (7) have retreated from their 2025 peak of 267 in early July while New 52-week Lows have increased. With S&P 500 and NASDAQ setting new all-time closing highs, we would expect Weekly New 52-week Highs to be increasing, not falling. This is another sign that participation in the rally is likely eroding. Should this trend persist, it would not be out of the question for the market to also begin to soften and consolidate and/or pullback.
The 30-year Treasury bond yield reached 5% again (8). Recently this has been a level that has pressured stocks, and it is a level to keep an eye on. Thus far this week the 30-year bond yield has modestly retreated back below 5%. Any brisk move back above 5% could be a catalyst for some market weakness.