Bearish Stock Market Entering Weakest Months

Even during the best of times, the stock market follows seasonal fluctuations and patterns. During a Bear Market, though, fears of exaggerated swings can send investors running to the exits. This year has been no different with the S&P 500 down 20.6% during the first half of the year—the fourth worst first half-year performance on record.

That did not bode well for July with many expecting the crushing sell-off to continue. So far that hasn’t happened. With just five trading days left in the month of July, the S&P 500 is up 4.8%, the Nasdaq has rallied an impressive 7.0%, and the TSX is up around one percent.

Despite surging inflation and rising interest rates investors are more optimistic on news that the odds of a deep recession have weakened. There’s no doubt the Canadian and U.S economies are slowing, but that doesn’t necessarily point to a deep recession. Especially in light of how well corporate earnings season has been going.

That doesn’t mean investors can get complacent. Major headwinds remain and a raft of poor economic data could change investor sentiment. This could be even more pronounced as we enter what is historically the weakest period for the stock market, especially during years of U.S. midterm elections.

What Are the Best and Worst Months for Stocks?

Historically, stocks perform better near the end of the year and the beginning of a year than during the summer period. The best month for the stock market is December, followed by November and April.

The boost is attributed in part to holiday-season optimism which leads to the traditionally bullish January effect. The Santa Clause rally was in full effect in December 2021 but rising interest rates and fears of a recession put an end to the January effect in 2022.

The worst period for the stock market is September, followed by August, and June. Since 1945, the average decline on the S&P 500 is around 0.56%. Over that period of time the S&P 500 has fallen 55% of the time compared with just 24% of the time in December.

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The stock market is entering its traditionally weakest period of the year. Stocks did better than expected in July but with the Federal Reserve still raising rates and seasonal trends turning negative, any unexpectedly bad economic data could make the coming months even worse than expected. Regardless of what happens this August and September, the trading experts at Learn-To-Trade.com can help investors take advantage of these peaks and valleys.

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