August Presents a Great Buying Opportunity
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CEO, TradeSmith
If you’re ready for the August doldrums to be over, you’re not alone.
Stocks are bruised, dropping 4% this month alone.
That’s the largest pullback all year. I’d bet many investors are ready to throw in the towel.
But what if I told you the latest doldrums fall right in line with history? It’s true. And like everything in life, that’s only half of the story…
The real narrative is juicier: A seasonal rally is right around the corner…
Investors have stomached a flurry of negative news lately:
- Stubbornly-high interest rates: Chair Fed Powell noted the Fed is prepared to keep hiking rates if necessary.
- Falling earnings: According to FactSet, for Q2 2023 the year-over-year earnings decline for the S&P 500 is -5.2%.
- Weak July retail sales out of China (+2.5% vs. +4.5% forecasts).
Market anxiety has driven the biggest monthly pullback all year:
Falling stock prices aren’t fun to sit through. Watching a portfolio melt day after day gets old, really fast. But once you study history, you’ll embrace these crazy days of summer as par for the course.
You see, going back to 1990, August averages a negative .6% return. In other words, 2023’s August drawdown is falling right in line with history.
Unfortunately, September doesn’t fare better with the index shedding another .8%.
It’s true, we’re in the midst of the seasonally weakest part of the year.
But this is where the story really begins.
What’s Around the Corner
Remember how I told you seasonal weakness is only one half of the story? Believe it or not, these tumultuous summer months ignite a monster-sized rally into yearend. That’s right, October through December are some of the greenest periods for stocks.Check it out:
I’ve circled this all-too-common setup.
This graphic proves that you shouldn’t be sad during August.
Rather be glad for what’s likely on the horizon: A big lift in Q4.
It’s simple. Big dips lead to bigger rips.
Since 1990, October has averaged a gain of 1.6% for the S&P 500. The fun doesn’t stop there as November ramps +1.9%. Throw in December’s gain of +1.3% and you’re looking at a potential rocket-sized liftoff.
With history as a guide, take this temporary setback for what it truly is: a great buying opportunity.
While we’re at it there’s another feather in the bull’s cap. There’s something special about this year for stocks. It’s a pre-election year.
Although that may mean media mudslinging is set to kick into high gear, to the stock market it’s a very positive omen. Let me show you what I mean.
Inside of that big study above, when you dive deeper, singling out pre-election years like 2023, the rally only gets bigger.
October jumps 4.4%… December clocks a 3.1% lift:
That’s a rally worth playing for.
That’s exactly how Quantum Edge Pro analyst Jason Bodner played the recent volatility. He’s a Wall Street veteran who knows this repeatable setup all too well. He made mention of this seasonal playbook weeks ago.
In his model portfolio, he raised cash and will be deploying it in the weeks to come.
That’s a strategy I can get behind… one grounded in data. Through the lens of history, these crazy days of summer don’t seem so bad after all.
Don’t fight it. Invite it!