Why the month of August in a pandemic for stock market investors is a moment of vigilance

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The summer days of the dogs on Wall Street are upon us.

The ancient Greeks referred to the so-called “dog days” in late July and early August, as the period in which the star Sirius – also known as Alpha Canis Majoris, or dog star – seemed to rise before the sun was the hottest part of summer, likely to bring fever or disaster.

This description, perhaps, is a good way to think of August markets amid a pandemic that continues to plague investors, wreaking havoc on global economies.
“Historically, August has had rather subdued performances … given the fluid situation of the coronavirus, uncertainty over the timing of fiscal stimulus measures and signs of slowing economic data, August could be more turbulent than by the past, ”Lindsey Bell, chief strategist at Ally Invest told MarketWatch. In fact, August tends to be more prone to unexpected turbulence than its traditional reputation as a period in which traders and investors bask before the start of fall trading operations.
Last year, for example, the month began with President Donald Trump reigniting Sino-U.S. Trade tensions via a series of tweets indicating that the United States would impose 10% levies on Chinese imports from China. September 1, 2017. The rise in tensions between North Korea and the United States led to the Cboe VIX volatility index,
-1,21%,
a measure of the implied volatility of the S&P 500 SPX,
+ 0,76%,
at its highest level at this time of year.
The Chinese yuan CNYUSD,
0,00
CNHUSD,
+ 0,18%
the devaluation and sluggish economy in 2015 helped fuel August’s worst performance in 17 years, amplified by anxiety about a Federal Reserve rate hike to normalize monetary policy (which seems so far away now) and weak global energy markets.
The list of tumultuous times in August is long, including Russia’s failure in 1998, but this moment in history may seem more ripe for turbulence.
There is arguably more uncertainty about the future of the economy and swirling markets than there are answers. And for many, a new round of fiscal stimulus for Americans affected by the COVID-19 pandemic tops the list of concerns.
Check-out: Coronavirus update: 17.6 million cases worldwide, including 4.6 million in the United States, as of August 1.
“I think in terms of the market outlook we are all focusing on two things: 1) the outcome of the fiscal stimulus / scope [unemployment] benefits and 2) the virus route, ”Michael Antonelli, market strategist at Robert W. Baird & Co., told MarketWatch.
“If I had to weigh the importance, # 1 equals 75% and # 2 equals 25%,” he says.
“August is notoriously slow, but those two things are unique to 2020 and could increase volatility,” Antonelli said.
A minimum of progress has been sufficient to improve the DJIA Dow Jones Industrial Average,
+ 0,43%,
le S&P 500 et le Nasdaq Composite Index COMP,
+ 1,48%
finish in positive territory on Friday, with a huge dose from Apple AAPL,
+ 10,46%
rally, Friday.
Discussions between Trump administration officials and Congressional Democrats over a coronavirus aid package spanned the weekend, after Democrats rejected the administration’s offer to a short-term extension of weekly unemployment benefit of $ 600.
Coming out of the weekend with no path to further Congressional help for Americans and struggling businesses could inject new volatility into the markets to start the month.
The economy contracted to a record 32.9% annualized in the second quarter, underscoring the fact that this is the deepest recession in US history.
Lis: “Massive Social Economy” – Federal Aid Prevents Even Deeper GDP Collapse
As well: MarketWatch Coronavirus Recovery Tracker
As MarketWatch’s Jeff Bartash says, the severity of the economic recession will be highlighted next week when the jobs report for July is released on Friday. The number of jobs salvaged last month is unlikely to match the huge increases in May and June which totaled 7.5 million.
Economists surveyed by MarketWatch predict on average that the United States created about 1.5 million jobs in July.
Worrying about further shocks to the financial system in August and the months ahead could also explain why the price of GOLD gold,
+ 2,33%
finished at a new record Friday and is approaching a round level at $ 2,000 an ounce. Meanwhile, the Cboe volatility index, which tends to rise when markets fall because it reflects the purchase of options contracts intended to hedge against stock declines, is trading well above of its historical average.
The index, which is colloquially referred to by its symbol, VIX, has a long-term average of 19.38 and hit an all-time high above 80 in March, a week before stocks hit a recent nadir. March 23, in the midst of the worst. of the epidemic of the new strain of coronavirus responsible for COVID-19.
VIX, which closed at 24.46 on Friday, traded above its historic average for 111 trading days, with 117 trading days representing the longest above-average trade since January 11, 2012, according to Dow Jones Market Data.
Despite concerns about the outlook for August, there is cause for optimism.
August’s performance in the presidential elections was remarkable. The August average performance is up 0.63%, as measured by the monthly returns of the S&P 500 Index since inception. However, during election years, August returns 2.87% on average, marking by far the best monthly performance, with July returns during election years averaging second at 2.08%, according to Dow Jones Market Data ( see attached table).

Source: Dow Jones Market Data

So far July has lived up to its billing and then a bit, with the S&P 500 up 5.51% in July, the Dow up 2.38% and the Nasdaq Composite posting a gain of 6.82%, on the back of an unhindered appetite for technology and e- trading stocks.
Granted, it’s also a pandemic year, so anything can happen.

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