Mark Hulbert: Stock investors will likely sweat out August if recent market history repeats

by | Aug 2, 2022 | Stock Market

August, not April, is the cruelest month — for stock investors, that is. Often August has been the best performing month, persuading investors that a hot August is more than a fluke. But there have been long stretches where the market’s return in August has been particularly painful. Consider the Dow Jones Industrial Average
going back to its creation in 1896. Over the next century, August was in first place for average performance, with the Dow producing an average gain of 1.8% for the month — more than four times the average return of 0.4% in all other months.

Yet for the past 35 years, since 1986, August has been the U.S. stock market’s worst month on average — worse even than September, whose reputation as a terrible month for stocks is widely known. The Dow’s average August return since 1986 is minus 0.67%, slightly worse than the minus 0.64% for September — and versus an average gain of 1.05% for the other months of the calendar. The difference between August’s average return and that of other months is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine. In other words, it was statistically significant when August did much better than other months — and when it fell behind. How can two opposites both be statistically significant? To understand the answer, we need to realize that statistical significance is a necessary, but not sufficient, condition for concluding that a pattern really ex …

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