What the “Dog Days of Summer” Mean for the Stock Market Dear Reader, I think all the folks in the “sell in May and go away” crowd are kicking themselves this year.
Simply put, it’s been a pretty incredible summer for the stock market. The S&P 500 rallied nearly 10% higher in June and July, while the Dow rose more than 8%. The NASDAQ continued to lead the way higher, up about 11% during the first two months of summer. So, if you had exited the stock market in May, you missed out on some substantial gains.
The reality is that there’s been quite a bit of positive news this summer that has investors in a better mood and willing to dip their toes into more corners of the market.
One of the biggest developments that has investors cheering is the fact that the Federal Reserve is finally done raising key interest rates. Fed Chairman Jerome Powell confirmed that the Fed would be “data dependent” moving forward, which is a dovish statement, and the Fed removed any reference to a recession being possible in the upcoming months. The Fed has actually successfully engineered a soft economic landing – which is the first time this has happened that I can remember.
As a result, recession fears have all but disappeared recently. In fact, Bank of America was the first major bank to scrap its forecast that the U.S. would experience a mild recession in 2024. The financial institution cited positive economic activity, low unemployment and softening price pressures for why the U.S. should skirt a recession.
Economic activity, in particular, has been resilient, as the Commerce Department’s preliminary estimates for the second quarter showed the U.S. grew at a 2.4% annual pace. Consumer spending also grew at a 1.6% annual pace in the second quarter, as consumer confidence has improved dramatically. The Conference Board’s Consumer Confidence Index soared to 117 in July, up from 110.1 in June. Consumer confidence is now at its highest level in more than two years – and that bodes well for continued consumer spending going forward. I should also add that cooling inflation could inspire Americans to open their wallets more in the upcoming months, too. Consumer inflation is now running at a 3.2% annual pace based on the Consumer Price Index (CPI). So, if consumer inflation continues to cool and drops closer to the Fed’s 2% target, the Fed could even start to cut rates in December.
Overall, the U.S. economic recovery has picked up speed, thanks to lower inflation and in turn, strong consumer confidence and spending. And with a recession now off the table, a lot of the cash that’s been sitting on the sidelines has started to pour into the stock market this summer.
The question now: Will this positive mood persist during the “dog days of summer”?
This is the question I’ll answer in today’s Market 360, and then I’ll share the stocks you should be buying on an August down day. What the Numbers Tell Us August is often referred to as the dog days of summer, given the hotter temperatures and humidity in much of the Northern Hemisphere. But, as temperatures are rising outside, liquidity is cooling off on Wall Street, and August often is a seasonally weak month. The fact is that trading volume is notoriously light in August, as both European and many Wall Street executives jet off on extended holidays. So, we could see some market consolidation this month.
While August got off to a rocky start this year, there is still a good chance it shakes out to be a decent month.
The analysts at Bespoke recently released some interesting data based on how August performs after a five-month winning streak. Since 1928, there have been 37 occurrences where the S&P 500 posted gains for five-consecutive months. In 29 of these instances, the S&P 500 went on to post a sixth-straight month of gains. The average gain after the winning streak has been 1.46%.
There have been four previous streaks where the month of July marked the fifth positive month in a row. In three of the four instances, the S&P 500 went on to post gains of 1.19%, 1.79% and 3.36% in August. 2016 was the outlier, with the S&P 500 dipping 0.12% in August. I should also add that in all four instances, the S&P 500 continued to climb higher in the following five months and 12 months, achieving average gains of 6.1% and 11.4%, respectively. So, even though August has historically been a weaker month, it could buck the trend this year, especially since the economic recovery is underway and the breadth and power of the market has improved steadily. Buy the Tech Dip The tech-heavy NASDAQ has been on fire this year, so it’s no surprise the sector is taking a breather this month. As of this writing, the NASDAQ is down more than 4% in August so far.
But here’s the good news: This dip is a great buying opportunity… but only in select stocks.
I believe, as do my colleagues Eric Fry and Luke Lango, that the best tech investments remain in the artificial intelligence (AI) space. The reality is there’s an AI Revolution underway, but only certain AI stocks are well-positioned to benefit.
So, we decided to team up and create a very special portfolio called the AI Revolution Portfolio. It features our 11 top picks that are riding the AI Revolution.
We combined my quantitative stock-rating system with Eric’s global macro investing expertise and Luke’s technology insights, and we found 11 stocks that we believe will not only dominate their industries because of their use of AI, but also shape the way the world uses this nascent technology.
We just added the 11th stock yesterday, so join today so you can snap up shares of this AI stock before it starts firing on all cylinders.
Plus, we’ll send you two brand-new reports: How to Buy Private Shares of an AI Innovator and 10 Stocks That Could Go to Zero.
In the first report, Luke explains how to invest in a private AI company in the culinary space. And in the second report, we feature 10 stocks that could soon go to zero as the AI story plays out. These stocks are household names and are held by millions of investors.
Click here to sign up for AI Revolution Portfolio today. Sincerely, |
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