Stocks Wrapping Up Crazy August, Staring at Historically Scary September

For the Dow Jones Industrial Average (DJIA), S&P 500 Index (SPX), and Nasdaq Composite (COMP), September has been most prone to steep losses since 2000

Aug 31, 2015 at 2:46 PM
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After spending most of 2015 quietly range-bound, U.S. stocks woke up in August, with turmoil in China sparking a wild couple of weeks. To recap, the Dow Jones Industrial Average (DJIA) suffered its biggest intraday drop in history, only to notch its best one-day percentage gain since late 2011. Meanwhile, the S&P 500 Index (SPX) suffered its worst stretch since the financial crisis and underwent an ominous-sounding technical development, while the Nasdaq Composite (COMP) fell into correction territory, only to enjoy its biggest intraweek gain on record. Against this backdrop, let's see how the major market indexes are set to wrap up the month.

At last check, the DJIA is on pace to end August with a 6.5% drop -- the steepest slide since May 2010, according to Schaeffer's Senior Quantitative Analyst Rocky White. Since the millennium, the Dow has suffered a single-month drop of 6% or more just 13 times, the worst of which came during the financial crisis. The last time the Dow surrendered more than 6% was May 2012.

Historically after these signals, the Dow has averaged a next-month drop of 0.1%, but has fared rather well during the year after a steep monthly slide -- especially after the Great Recession. In fact, the Dow has gained more than 20% in the subsequent year after a big monthly drop every time since the rocky month of January 2009, and has averaged a one-year return of 11% after the 13 aforementioned signals.

However, it's worth noting that the month of September has accounted for almost one-third of these signals, though there haven't been back-to-back August-September swoons of serious magnitude.

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The SPX is on pace to lose just over 6% in August -- the worst month since May 2012. The broad-market barometer has dropped this much or more 20 times since 2000, with October 2008 once again the roughest month.

In the month after these sharp losses, the SPX has lost another 1.4%, on average. Going out one year, the S&P has averaged a gain of 4.1%, but like the Dow, has bounced back in a stellar way over the past five years. In fact, the SPX shed nearly 11% in February 2009, only to rally more than 50% by February 2010.

Again, though, September has been the most prone month for serious SPX drops, with four occurrences since 2000. The only time the index tumbled significantly in both August and September was in 2001, though.

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The tech-heavy COMP is bracing for a 6.3% August loss, marking the worst month since May 2012. The index has suffered single-month swoons of 6% or more over 30 times since 2000, with the worst coming during the millennium bubble pop.

After these signals, the COMP has averaged a one-month loss of 1.5%, and a one-year gain of 1.2%. However, since the financial crisis, the COMP -- like its peers -- has bounced back tremendously in the year after a signal, gaining 62.5% from February 2009 to February 2010.

As with the Dow and S&P, September has been the worst month for COMP signals since 2000, with five. Unlike the Dow and S&P, the COMP suffered two back-to-back August/September drops of more than 6% in 2011, as well as in 2001.

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