Equity investors know that the third quarter is typically the most challenging of all four quarters for the markets, observes Sam Stovall, chief investment strategist at CFRA Research in the firm's flagship newsletter, The Outlook — and a speaker at the MoneyShow Canada Virtual Event on July 8-9.
Indeed, since WWII, the S&P 500 gained an average of only 0.5% in Q3, as compared with increases of 1.9% to 3.8% for the other quarters.
Yet, the typical market mayhem doesn’t materialize until August and September, leaving the S&P 500’s return reputation for July tainted by association.
Actually, the S&P 500 average price change in July was higher than the average for all 12 months, though its frequency of posting a gain was sub-par (56% versus 60% for all 12 months).
The best July jump (8.0% in 1951) was the weakest of all 12 monthly high-water marks, while July’s deepest full-month decline (-8.8% in 2002) was third shallowest of all 12 months.
Digging a little bit deeper, we see that during the month of July, since 1995, the S&P 500 rose an average of 0.8% in price, outpacing its mid-cap and small-cap brethren. In addition, eight of 11 sectors in the S&P Composite 1500 Index gained in price during the month, led by financials, real estate (since 2007), and technology, while communication services, energy, and utilities typically declined.
Finally, of the 96 S&P 1500 sub-industries that have 20+ years of history, biotechnology, motorcycle manufacturers, and paper products posted the highest average advances, while the commodity chemicals, gold, leisure facilities, and oil & gas drilling groups slumped an average of 2% or more.
This year, the markets will likely continue to be challenged by Covid confusion, though Q2 EPS expectations – at minus 44% — appear overly dire and may lead to a better-than-expected bounce.
Representative companies from a list of S&P 1500 sub-industries with the best average returns in July are: Harley-Davidson (HOG), Amgen (AMGN), Clearwater Paper (CLW), Broadcom (AVGO), Citigroup (C), Kansas City Southern (KSU), Boston Beer (SAM), and Lincoln National (LNC).