Star-Bulletin news services
August once again
may take wind out
of stock market’s sailThe Dow and S&P have suffered
their worst performances during
the last 15 years in that month
NEW YORK » August has long been a dismal month for Wall Street, with stocks suffering some of their worst declines amid economic problems in the United States and political troubles overseas. Given current earnings and economic conditions, which are improving but still sluggish, this August promises to be no different.
During the past 15 years, the Dow Jones industrial average and Standard & Poor's 500 index have had their worst monthly performance during August, with the Dow off an average 1.9 percent and the S&P 500 down an average 1.6 percent, according to Jeff Hirsch, publisher of the Stock Trader's Almanac.
August has also been the second worst month, behind September, for the Nasdaq composite index. On average, the Nasdaq has lost 0.6 percent during August.
At times in the past there have been specific political events that drove the market lower in August. In 1998, stocks fell when Russia's ruble crashed. In 1990, investors sold off stocks in response to Saddam Hussein's Aug. 2 invasion of Kuwait.
But Hirsch attributed the August curse mostly and simply to the time of year. With second-quarter earnings season nearly over, many investors and traders will take a break from the market.
"There will be fewer people on Wall Street this month. Kids are out of school. People are hitting the beach," he said. He also noted that trading volume is typically low in August, and has already been declining in recent weeks.
And what makes this August problematic, analysts say, is that while economic data -- such as the surprising strong second-quarter gross domestic product reported Thursday -- are turning more positive, stocks are already priced at a premium.
"You've already had a big move," said Gary Kaltbaum, president of Investors' Edge Partners, a money management firm in Orlando, Fla., predicting a lackluster August at best.
Indeed, from March 11 lows for the year, the Dow Jones industrial average rose as much as 23.9 percent and remains up 21.7 percent. The Nasdaq surged as much as 38 percent, and is still up 34.9 percent. The Standard & Poor's 500 index climbed as much as 26.3 percent, and remains up 22.4 percent.
"The market can't break out, but so far it hasn't broken down. ... The good news is the correction has been nominal," Kaltbaum said.
Richard J. Nash, chief market strategist at Victory Capital Management, also believes stocks will have a hard time advancing this month, mostly because of their higher prices.
"We continue to believe that stocks may need some time to consolidate recent gains. ... Valuations are fair, but full," wrote Nash in a research report out Friday.
If this August proves to be another loser, analysts say investors shouldn't worry. It doesn't mean the economy isn't strengthening or that the market isn't stabilizing. Rather, investors, who trade on the future, have already figured in improving economic data into higher stock prices.
"It may be that so much of what is being announced is already being factored into stock prices and we don't see (really) higher prices until September or October. Despite the good economic reports that we have gotten, this market might be stuck in somewhat of a trading range for the next 60 days," said Brian Bush, director of equity research at Stephens Inc. in Little Rock, Ark.
And, August aside, many on Wall Street believe the market's next big move is bound to be up, not down.
Kaltbaum said, "If we do break out of the (trading) range, that will be another huge positive, because we will have another leg up."
Wall Street's main gauges ended the week lower. For the the Nasdaq and S&P, it was the second losing week in three.
The Dow ended the week down 130.60, or 1.4 percent, closing yesterday at 9,153.97.
The Nasdaq had a weekly loss of 15.08, or 0.9 percent, closing at 1,715.62 yesterday. The S&P fell 18.53, or 1.9 percent, for the week, closing at 980.15.
For the week, the Russell 2000 index, the barometer of smaller company stocks, declined 0.80, or 0.2 percent, closing at 468.08.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,454.16, off 145.20 from the previous week. A year ago, the index was at 8,186.56.
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