August was a wild ride for the market. The S&P 500 (SPX) saw a respectable gain of 2.28%, with the Dow Jones (.DJIA) and Nasdaq Composite (COMP) rising by 1.76% and 0.65%, respectively. However, it took quite the unusual path to get there.
In our June Client Newsletter, we said that if soldiers ditched the generals in battle it would end in defeat because generals cannot win a battle on their own. In that metaphor the largest stocks in the market (Magnificent 7) were the generals and the rest were the soldiers. Well, the soldiers stormed the battlefield in July.
We just closed the second quarter (Q2) of 2024. Unfortunately, the average stock did not perform well in Q2,but the biggest stocks did, creating a notable disparity between the generals of the S&P 500 and thesoldiers.
Stocks rebounded in May, defying the old market adage that suggests seasonal weakness. The S&P 500 has now posted a gain in the month of May for five straight years, and nine of the last 10 years.
There is an old market adage that goes, “Sell in May and Go Away.” It is based on data that suggests the bulk of returns come between the fall and summer months (November – April). This year, that should have been amended to sell in April.
Markets were up again in March, extending an already historic win streak. The S&P 500 (SPX) gained over 3%, the Nasdaq-100 (NDX) added 1.2%, and the Russell 2000 (RUT) appreciated 3.4%. SPX and NDX have now closed five straight months in the green.
February is typically a weaker month for markets. Since 1928 the S&P 500 (SPX) has averaged a loss of 0.07% and closed positive just 55% of the time.
The month is often referred to as the "bear killer", as its end ushers in the beginning of the seasonally strong six months for the market (November - April)
We thought it would be prudent to watch the movement of the 10-year going forward. In August, we reviewed how the 10-year US Treasury yield had rebounded to its previous October 2022 high of around 4.3%. The October 2022 move to 4.3% coincided with the low in the US and Canadian stock markets last year.
Stock markets can have a seasonal pattern to them and the August to October period can produce some additional volatility when we look at history.
It has been quite an 18 month ride in the US and global stock markets since they started coming under selling pressure in January 2022 with the potential significant interest rate increases due to the real threat of inflation. Ultimately the US S&P 500 found a bottom in October 2022 and continued to advance to the current levels in 2023.
With the movement last week, it has been over 5 months since the top and we are just now entering bear territory. Although we do not know what the amount of the decline will ultimately be, we do believe it is prudent to recognize the risk environment that we are in.