Money flows from harvesting made August a great month for stocks in the first half of the 20th Century. It was the best month from 1901 to 1951. In 1900, 37.5% of the population were farming. Now that less than 2% of the population farm, August is among the worst months of the year. It was the worst month for the Dow Jones and S&P 500 indexes from 1988-2014, with average declines of 1.1% and 0.8% respectively. August also is bad for the Nasdaq (–0.1%) and the second worst month for the Russell 2000 (–0.5%) during that time. But in pre-election years since 1950, August’s rankings are better.
Contributing to the poor performance were turmoil in Russia (1987), the Asian currency crisis (1997) and the Long-Term Capital Management (1998) debacle with the Dow shedding 6.4% in one day. In August 2014, the Dow dropped a record 1344.22 points (15.1%), which was the second-worst monthly percentage loss since 1950. Then in August 1990, Saddam Hussein triggered a 10% slide. The best Dow gains occurred in 1982 (11.5%) and 1984 (9.8%) as bear markets ended. Down moves of more than 4% in 2010, 2011 and 2013 widened August’s losses.
The first nine trading days of the month have exhibited weakness while mid-month is strongest. Note the bullish cluster from August 14-19 (right). The end of August tends to get whacked as traders evacuate Wall Street. The last five days have suffered in 13 of the last 19 years with the S&P 500 up only four times on the next to last day in the past 19 years. The last five days of August have averaged losses of: Dow, –1.3%; S&P 500, –1.2%; Nasdaq, –0.9% and Russell 2000, –0.3%.
On the Monday of expiration, the Dow has been up 13 of the last 20 years, more than 1% in four of them; while on expiration Friday it has dropped four of the last five years. Expiration week as a whole is down slightly more than half the time since 1990, but some of the losses have been steep (-2.6% in 1990, -2.3% in 1992, -4.1% in 1997, -4.0% in 2011 and 2.2% in 2013). The week after expiration has been up 15 of the last 25.