Bulls and the bears each claim August as one of their own. They’re both wrong.
When taking all available historical data into account, August is an average month. There is no statistically significant difference between the month’s average return and that of all other months. Your best guess for how the stock market will perform during August is that it will be no better or worse than the long-term average for all months — which is a dividend-adjusted gain of 0.70%.
You may still want to bet that August will be particularly good for U.S. stocks. Or you may believe it will be especially bad. But you can’t justify either bet based on.
None of this has stopped market analysts from torturing the data to make it say what they want.
Some choose to base their analysis on data back to 1957, the year the S&P 500 SPX was created. For them, August appears to be a poor month. In a ranking of average monthly returns since then, it is in 10 th place — with an average S&P 500 return of 0.10%, versus 0.70% for all other months on average.
August looks a lot better to analysts who focus on the Dow Jones Industrial Average DJIA back to 1896, when that benchmark was created. Now the month is in fifth place in a ranking of monthly average return, with an average gain that is nearly double that of the other 11 months (1.0% versus 0.60%).
Regardless of whether you focus on the S&P 500 or the Dow, there is little consistency in August’s performance rank relative to other months. This is illustrated in the chart below, which shows the Dow’s monthly averages. The red bars reflect data going back to 1896, and the green bars reflect data back to 1990. Notice that over the more recent period, August is the second-worst performer on average — even though over the entire period since 1896, August is an above-average performer.
The most statistically robust conclusion comes from focusing on all available data, which extends back to 1793 (courtesy of the database compiled by Edward McQuarrie, a professor emeritus at the Leavey School of Business at Santa Clara University in California). In all Augusts since then, the stock market has risen 58.4% of the time — not significantly different than the 54.4% average for all other months.
The bottom line? Take with a healthy grain of salt the various ways in which analysts slice and dice August’s past returns. What they do with the data tells you about their bias rather than how the market will most likely perform during the month.