July may be the best performing month of the third quarter, but the mostly negative results in August and September make the comparison easy. Two recent “hot” Julys in 2009 and 2010 where DJIA and S&P 500 both gained greater than 6% and a strong performance in 2013 have boosted July’s average gains since 1950 to 1.2% and 1.0% respectively. This strength inevitably stirs talk of a “summer rally,” but beware the hype, as it has historically been the weakest rally of all seasons (see “Pattern,” page 72) according to Stock Trader’s Almanac 2015.
July begins Nasdaq’s worst four months and is the second worst performing NASDAQ month since 1971, posting just a 0.1% average gain. Dynamic trading often accompanies the first full month of summer as the beginning of the second half of the year brings an inflow of new funds. This creates a bullish beginning, a soft week after options expiration and strength towards the end.
Trading on the day before and after the Independence Day holiday is often lackluster. Volume tends to decline on either side of the holiday as vacations begin early and finish late. Since 1980, DJIA, S&P 500 and Nasdaq have recorded net losses on the first trading day after. Russell 2000 is negative the trading day before and after.
Pre-election-year July’s are something of a mixed bag, ranking #6 for DJIA and #8 for the S&P 500, averaging gains of 1.1% and 0.8% respectively (since 1950); while Nasdaq (since 1974) and Russell 2000 (since 1982) pre-election Julys rank #10. Nasdaq has advanced only in five of the last eleven pre-election Julys with an average gain of 0.8%. Russell 2000 has advanced five of its last nine with an average gain of 0.5%.