Month-to-date, June has played out to its historical tendencies as the S&P 500 Index (SPX) has lost more than five percent for the month. Fears surrounding the fiscal situation in Greece and other Euro Zone countries have frayed the nerves of already jittery investors. Adding another layer to the market’s uncertainty are the fluctuating economic data points that have re-raised some doubts on the strength of an economic recovery. With the fundamental picture for stocks showing signs of struggling, the technical and seasonality trends of the market are likely to play a continued heavy hand on the market’s direction.
For purposes of this report, I will stick to the quantitative data on July seasonality as some positives are present in the data. Looking back to 1950, the SPX averages a positive return of one percent for the month of July. The average positive returns for the month of July are based on a win rate of 54%. Narrowing the look back period to include the last 21 years (since 1990) the yields become less robust as the S&P averages a performance of just 0.7% for the month, positing “winning” months in 10 out of the 21 months (48% win rate). Narrowing the testing period even more to include only the last eleven years tightens the average return to 0.2% with a win rate of 45% (5 of 11 months positing positive returns).
From a seasonality perspective, July often provides a much-needed rest from the first round of selling that often results from the “sell in May” phenomenon that often drives the knee-jerk selling as we enter the lightly traded months. This year, the results are falling into the same pattern that we are growing accustomed to seeing as the economy, geopolitical concerns and consumer confidence have been flagging. Earnings season is set to kick off in two weeks as Alcoa will announce its quarterly results on Monday, July 11. This earnings season may have a larger impact than the last two as the market will be looking for a catalyst to pull stocks out of their two-month slump.