August is not historically a very good month for stocks. Across several major indices, average returns for the month are low to negative, and it is essentially a coin flip as to whether an index will finish higher or lower. In other words, there is no strong directional bias in August.
Some investors may think all months are a coin flip as to whether a stock index will go higher or not, but that doesn't appear to be the case. Some months are much stronger than others.
For example, the S&P 500 has moved higher in 16 out of the last 20 Aprils and Novembers (80%), with average gains of 2% and 2.5%, respectively. The S&P 500 has moved higher in July 75% of the time over the last 20 years, with an average gain of 2.4%. Those are the best months of the year for stocks, with upside biases.
For comparison, here's how August has historically performed in various indices.
The S&P 500, tracked by the SPDR S&P 500 ETF (NYSE:SPY).
- 12 out of the last 20 years it has moved up in the month (60%), with an average gain of 0.1%.
The Nasdaq 100, tracked by the Invesco QQQ Trust (NASDAQ:QQQ)
- 11 out of the last 20 years it has moved up in the month (55%), with an average gain of 0.7%.
The NYSE Composite Index is a broad measure of stock performance, including companies of varying sizes and industries.
- 10 of the last 20 years it has moved higher in August (50%). The average return for the month is -0.6%.
So are there any stock market bright spots in August?
Possibly, but when looking at seasonal patterns in Sector ETFs, they told the same story as the stock indices. None of the sector ETFs had strong historical performance in August.
Most stocks move with the direction of the indices, but there are occasionally ones that perform strongly while the stock indices are weak or flat. These can be found by looking for price momentum in a stock scanner.
The study of how stock indices have historically performed at a certain time of year is called seasonality. It doesn't necessarily predict what will happen this year, it only tells us what has happened in the past. It should not be relied on exclusively for trading or investing decisions. Use it, or don't use it, in conjunction with a personalized trading/investing plan.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.