By Nick Godt
While many in the market say U.S. stocks are due for a breather
after scoring their best July in 12 years, the market can at least
count on favorable odds for another month of gains in August.
The market, as measured by the broad S&P 500 index, has
advanced in August 60% of the time in the 81 years since 1927, for
an average gain of 4%, according to Standard & Poors. And since
1999, August has brought gains seven times out of 10.
One caveat for market analysts, however, is that the market has
continued its powerful rally through the summer so far.
"The stock market appears slightly overbought having moved a
little too far, too fast over the last month," said Fred Dickson,
chief market strategist at Davidson Companies.
In July, the Dow rallied 8.6% to mark its best monthly gain
since Oct. 2002 and its best July since 1989. The S&P 500 rose
7.4% for the month, its best July since 1997, and the Nasdaq gained
7.8%.
And since hitting lows in March, the S&P 500 has rallied a
whopping 50%.
These figures, and especially the sharp gains seen in July, have
a number of market strategists say stocks are overdue for a
breather this month.
"Suffice it to say that stocks are overdue for a rest, although
the 'overbought' condition can remain for quite some time before
the markets finally take a breather," said Paul Nolte, director of
investments at Hinsdale Associates, in a note.
For Marc Pado, market strategist at Cantor Fitzgerald, "the
market may start to struggle by late August."
On Monday, at least, the market continued on its merry way
higher. The Dow Jones Industrial Average (DJI) rose 114 points, or
1.2%, to finish at 9,286, its highest close since Oct. 4. The
S&P 500 index (SPX) rose 15 points, or 1.5%, to 1,002, also its
highest close since Nov. 4. The Nasdaq Composite (RIXF) rose 30
points, or 1.5%, to 2,008, its highest close since Oct. 1.
The market received a boost from upbeat global reports that
fueled hopes for the economy. Investors also cheered early July
vehicle sales figures from auto makers, with hopes raised by the
government's Cash for Clunkers program. Shares of Ford Motor Co.
(F) rose 7% after it announced its first sales increase in almost
two years.
In July, Ford shares rallied 32%. Toyota (TM) gained more than
11%, Honda (HMC) rose 17%, Nissan (NSANY) gained 20%, Daimler AG
(DAI) was up 28%.
August in perspective
Since World War II, August months have tended to bring gains but
not by as much as in other months of the year, according to RDM
Financial. Since 1945, August has returned 0.4%, placing it 10th
among the 12 months of the year.
"However, when the economy is rebounding, then the market has
tended to put in a much stronger performance [in August]," said
Michael Sheldon, market strategist at RDM.
Many market observers believe that back in March, the market has
hit its lows of the bear market that followed the financial crisis.
And on the 14 occasions that have followed bear-market bottoms
since 1932, the S&P 500 has risen 10 out of 14 times in August
for an average gain of 1.2%.
"Past performance is never 100% guarantee of returns in the
future," Sheldon said. "But the outlook for August continues to be
more positive than some would think," he said.