(News Bulletin 247) – Summer is finally here with the return of good weather and high temperatures. But it is also in August that the weather is generally the foggiest on the stock market. A seasonal phenomenon that leaves one perplexed…

The Stock Market and Seasonality. And who better than Mark Twain, creator of the characters Tom Sawyer and Huckleberry Finn, to mock this phenomenon in the best possible way. According to the famous American writer (who himself had made a number of disastrous investments), October is one of the most dangerous months to play the Stock Market, the other risky months being July, January, September, April, November, May, March, June, December, August and February.

But this joke masks a completely real seasonal phenomenon (and quite unexplained in light of modern financial theory, which would have it that market inefficiencies are smoothed out over time): no, not all months are equal on the stock market.

Statistically speaking, certain periods – typically during the summer – are generally less profitable than others – winter is usually more favorable with the Halloween effect.

Better to laze around than invest

Jeffrey Hirsch, editor of the Trader Almanac (a somewhat folkloric publication but one that enjoys a real audience), noted in 2021 that between 1988 and 2020, August had the worst performance of the twelve months of the year (of course, this does not mean that every August is down, nor that you should not take advantage of a possible downturn to invest).

The average variation had been negative in August for the main American indices over the period (-0.8% for the Dow Jones), making it the worst month of the year with some memorable episodes such as the bankruptcy of the Long-Term Capital Management fund in 1998 (-15.23%) or the invasion of Kuwait by Iraq in 1990 (-10.01%), and more recently quite notable declines in August 2010, 2011 (problem of the US debt ceiling), 2013, 2015 and in 2022, years during which the Dow Jones had lost more than 4%, recalls Jeffrey Hirsch in a post dated July 24. And if we add the months of August 2021, 2022 and 2023, the performance still remains negative at 0.92% for the Dow Jones.

“This behavior at this time of year is not unusual,” CNBC notes. Over the past decade, the S&P 500 has averaged a gain of just 0.1% in August, making it the third-worst month for the index, according to a seasonal trends analysis by CNBC Pro.

And if we expand over time, “the performance is even worse,” CNBC also notes. Over the past 20 years, the S&P 500 has recorded an average monthly loss of 0.1% during that period.

CNBC details the reasons why the market has a tendency to underperform this month. The financial news outlet cites trading volumes that tend to drop in August as traders and investors head off on vacation before the end of the summer. This desertion of traders can therefore lead to more volatility.

In Paris, the observation is identical. Since its official launch in June 1988, the CAC 40 has recorded 23 bearish Augusts against only 13 bullish ones. Here too, there were some fairly significant, if not memorable, drops. The month of August 1990 was particularly hot (-14.01%), again due to Iraq’s invasion of Kuwait. On average, the Paris index lost 1.30%.

The Fed in the crosshairs

What about 2024? While past performance is no guarantee of future performance, we can still detail some highlights that are likely to set the tone for the financial markets this month.

Investors will have their hands full, for example, with the publication of the July consumer price index (August 14) and the annual Jackson Hole symposium, which will take place from August 22 to 24. This annual meeting of central bankers will take place in very special “circumstances,” John Plassard, investment specialist at Mirabaud & Cie, informs us in an expert opinion published by Les Affaires.

“First of all because this year’s theme ‘Reassessing the Effectiveness and Transmission of Monetary Policy’ is very topical, as is ‘Structural Shifts in the Global Economy’ in 2023,” the specialist recalls.

Also, because investors will be looking for clues on the central question that has the financial community on tenterhooks: is the US Federal Reserve close to initiating its first rate cut in four years?

For the markets, a cut is a given for September with the latest activity and employment statistics published at the end of the week. They assign an implied probability of 100% in favor of a rate cut at the September meeting, with a probability that has risen to 79.5% for a cut of 50 basis points (or 0.50 percentage points), after a weaker than expected employment report published this Friday.

This statistic has also undermined the morale of investors, who now fear a recession in the United States. The Paris Stock Exchange therefore begins August on a dull note, with the CAC 40 having lost 3.7% over the first two sessions of this eighth month of the year… This agitation seems for the moment to give credence to the bad reputation of August on the Stock Exchange.