The first half of 2024 has been a banner period for investors. The S&P 500 (^GSPC) has climbed a respectable 14.5%, while the Nasdaq Composite (^IXIC) has delivered an even more impressive 18% return. As we head into July, a critical question emerges: will the positive momentum hold, or will historical seasonality patterns take hold and usher in a period of slower growth?
History Favors July:
Looking back, July paints a bullish picture. Since 1928, there have been 29 years where the S&P 500 was up 10% or more at the halfway point. In those instances, the average gain by year-end was a robust 24%. Additionally, the Nasdaq has enjoyed positive returns in 10 out of the past 11 Julys, highlighting a strong seasonal trend for the tech-heavy index.
This optimism extends beyond July. Each of the prior 12 instances of strong starts to the year (dating back to 1988) saw the second half finish in positive territory. Furthermore, the combined second and third quarters boast an average gain of 6.1% (with a median of 9.6%) and have been positive 76% of the time.
A Word of Caution:
However, historical data is not a crystal ball. While July offers a promising outlook, it’s important to acknowledge past exceptions. The infamous October crashes of 1929 and 1987, following strong first halves, remain stark reminders that unforeseen events can dramatically alter market trajectories.
Beyond July: A Look at the Rest of the Year
While July appears favorable, the remaining months paint a more nuanced picture. August presents a lackluster average gain of 0.4% with a worrying 52% loss rate. September and October see average returns dip into negative territory, highlighting the potential for volatility. However, it’s worth noting that median results for these months remain positive, suggesting potential for upside surprises.
The year concludes on a more optimistic note. November typically marks the beginning of the “Santa Claus rally,” a period of bullish momentum that carries through to year-end.
Seasonality and the AI-driven Market
It’s important to acknowledge that historical seasonality patterns can only explain a portion of price movements. Unexpected events and major economic catalysts can quickly upend these trends. However, in the current AI-driven bull market, seasonal patterns have held surprisingly true.
Early July Strength: A Potential Catalyst?
Bank of America (BofA) conducted a separate study analyzing the first and last 10 trading days of each month since 1928. Their findings revealed that the beginning of July boasts the highest average return of any period, up 1.5% with positive results 69% of the time. This additional data point suggests that early July could be a period of relative strength for investors.
Conclusion: A Summer of Measured Optimism
Combining these various insights, a picture emerges of a potentially strong start to July, followed by a period of potentially choppier waters. Investors should be prepared for some volatility in the later summer months, with a potential resurgence of bullish momentum kicking in around November.
While past performance is not always indicative of future results, historical seasonality, coupled with the current market environment, offers some reasons for cautious optimism in the near term. However, staying informed about major economic developments and exercising sound risk management practices remain crucial for navigating the ever-evolving market landscape.