Stock Market Summer Seasonality: The Stall Comes and What It Means For Your Retirement


Over the last 5 years, our OHFG investment team has discussed stock market cycles and seasonality on multiple occasions.  Why? Because much of public market investing is repeated human behavior.  It is a real-world lesson in behavioral finance as humans, in mass, tend to be creatures of habit repeating behaviors time and time again.  This has led to the saying, “history may not always repeat, but it often rhymes”.

Historically, we try to publish these pieces on cycles and seasonality in front of these time periods; when we see opportunities to exhale, not get FOMO, and wait on better tactical opportunities, or on other occasions, like into the 4q 2020, pre-2020 Presidential election, to accelerate your stock buys when volatility is high and the markets are down or as Charles would say, acting squirrely.

Summer Seasonality is a Real Thing

Summer seasonality in the US stock market is historically a real “thing”.  The data confirms it.  It shouldn’t come as a surprise to investors as such.  As we’ve discussed in prior-videos, America is a consumer led economy with well over 70% of our GDP dependent on consumers and their consumption of goods and services.  This compares to less than 30% of our economy driven by the manufacturing and shipment of those goods and services. What happens during the Summer? Our consumption slows as we go on late summer vacations and prepare for the upcoming school year.  Because of the seasonality in our consumption habits, it bleeds into corporate earnings, GDP statistics and historically monthly stock returns.

Which brings me to the title of this week’s episode, Summer Stock Seasonality, It’ A real Thing.  Before we press onward, please take a moment to click on both the subscribe and notification bells so you will be alerted when our investment team uploads our latest content.  Or better yet, give our OHFG team a call at 877-896-0040 to speak to our team and set up an initial consultation with an OHFG advisor to discuss your personal financial situation.

We discussed first our 3rd year Presidential cycle bullish stance early last 4th quarter in 2022 when the SP500 was near 3600 and the vast majority of strategists were talking “new lows are coming, “recession is around the corner”, or worse yet, “we are going to crash”.  Just pull up any Jeremy Grantham from GMO video the last 10 years, any market call from the Heisenberg group on Seeking alpha, or frequent “black Swan” commentators on CNBC like Nassim Taleb, and you’ll see what I’m talking about. Eventually, one of them will be right, and take a victory lap, and the financial press will laud them that they “nailed it”.  However, they’ve all been consistently wrong for almost 13 years and their “advice” has done you no good in reaching your long-term financial goals. Or even short term tactically trading if that’s what you do. Here is Taleb’s latest dire forecast.  You can watch it here or watch any of the ones he’s promoted the last 10+ years. They are all the same as far as I’m concerned.

S&P500 Performance

The last 3 quarters have been super strong for the stock markets, with the S&P500 up almost 20% year to date.  But it has not been “historic”, like many strategists who have been cautious or negative the whole way will lead you to believe.  It’s been quite normal for a  1. 3rd year Presidential election cycles combined with 2. a Federal Reserve that is slowing its interest rate increases.

The June and July rally in the SP500 returned a spectacular 9.8% with July’s 3.1% return almost double the average July of +1.7%.  Once again, here’ a table of the monthly seasonality of the S&P500 during Presidential Cylce year 3.  This data is complied by Steve Suttmeier’s group at Merrill.

Monthly seasonality of the S&P500 during Presidential Cylce year 3.  This data is complied by Steve Suttmeier’s group at Merrill.

As one can see we have now left what has historically been the high odds for a high positive return period of 1h23, that ended with July, and entered what should be 3 or 4 months of some negative monthly returns, and higher volatility at worst, or sloppy, choppy sideways behavior, a general consolidation, and “net” little to no price appreciation in the S&P 500 at best.

Does that mean you should “blow everything out” of your portfolio to avoid what could be a sloppy time period?  No, not if you are sticky to a long-term financial plan. Why because the economic, federal reserve and stock market cycle work still favors us approaching our old all-time highs of 4800 later in the year and exceeding them in the 1q24.

Just reminding investors of some of the data we shared in 4th quarter 2022 when many were suggesting “dire” economic and stock market outcomes because of the poor 1-3rd quarters of 2022.  The data, as presented by Merrill once again said buy stocks for a strong 9 to 12-month run.  Recall back in late 3rd quarter 2022, United Kingdom pension funds were blowing up causing some wild short-term swings in bond and stock markets?   They were required to cover mark-to-market losses with their lenders or derivative market counterparties. Dramatically higher interest rates throughout 2022 generated large mark-to-market losses for pension funds that, combined with higher volatility, triggered large margin calls.  We wrote about this event and made the comparison of it to the Tequila, Mexican debt crisis that Alan Greenspan caused into November and December of 1994 as he raised interest rates swiftly back then to qwell inflation.  The data shows that these events happen near the end of interest rate cycles right before Central Banks slow their rate moves and investors shouldn’t wait to see 1. Inflation as reported by government economists plunged or 2. Wait for interest rate cuts, because waiting would cause you to miss much of the move higher in stocks.

S&P500 Presidential Cycle Returns for the Midterm Year into Year 3 of the Cycle

The S&P closed the 3rd quarter of 2022 around 3585.  The median 3 quarter return from 3rd 2tr of the second Presidential cycle year to end of first half of year 3 was 17.7%. Which equated to 4220.  The S&P500 did better than that this time returning 24% over the 9 months to 4450. Ev3en more interesting to me is the median 12-month return, which would be ending Sept 30th next month is an impressive 22.2%.  That return would equate to 4517 on the cash SP500.  As of this script being written, on Aug 3rd?  the cash SP500 stood at? 4517.

While the overall stock market accelerated above our very short term forecast in July, pulling forward some of our expected 2023 returns into earlier months, our team remains positive on the total return outlook of the S&P 500 into year end and would use seasonal weakness in August through mid Sept to mid-October as an opportunity to add to stock positions.  While many other strategists, advisors, and newsletter writers, have been calling the stock markets a bubble for years, we still see good investment opportunities in the public markets.  True bubble type equity action, and its popping, in our opinion would come from higher levels in the stock markets, later in the cycle.  In fact, if one is just a chartist, viewing equities as pictures of supply and demand, independent of valuations    and fundamentals, and one looks at many of the monthly setups of some recent technology AI stocks and their moves, one might come to the conclusion that “if”, and I do mean “if” we are in an AI bubble, called it internet bubble 2.0, we are only halfway there in time and price.

To remind investors who haven’t studied it or didn’t live through it, these were the monthly returns of the Nasdaq composite into the internet bubble peak in February 2000.  Here are the tables. The Nasdaq had gained over 125% in the year and a half leading up into peak internet bubble and included monthly returns, not annual returns, but monthly returns of 13%,10%, 12.5% 14%,12.5%, 22%, and 19%.  Toward the end of bubble like moves, stocks usually move parabolically, meaning each successive month has a higher return than the previous month until buying is exhausted and short selling has collapsed.  They are a lot of fun on the way up, because every buy looks smart and every sell looks wrong.  But they always end the same way, hardship for those who get greedy, stay too long, or don’t recognize the peak, reversal, and downward momentum that usually lasts quarters and years, not days and weeks.

Monthly returns of the Nasdaq composite into the internet bubble peak in February 2000.

At Oak Harvest, we currently manage broadly diversified equity portfolios that balance risk and reward for our clients.  We don’t concentrate our clients’ funds in only one or two sectors, seeking to hit a grand slam.  We try to hit singles, and doubles and occasionally a homer if someone makes a mistake and we find a stock at the right price at the right time. For those investors who are less optimistic and risk taking, those seeking higher dividend income that grows, those investors willing to forgo some potential price appreciation in favor of lower volatility, we have a dividend growth equity model.

Those investors who are more in the optimistic camp, seeking higher long-term price appreciation which does carry higher expected volatility without the focus on dividend income, we have a Blue-Chip growth equity model. The overall tools our advisors and financial planners use are usually a combination of markets based and insurance based tools to meet your retirement goals. Our investment team is busy working on some new, and highly unique equity models, that few advisors have the experience our investment team has for our advisors to use as tools for our clients in the not so distant future. Stay tuned.  The future and stock markets are always uncertain and that is why our retirement planning teams plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at 877-896-0040 or click here and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.