Can the S&P 500 Buck the "Summer Doldrums" This Year?

The four years that most resemble 2021 are 1963, 1950, 1995 and 1964

Senior Quantitative Analyst
Jun 2, 2021 at 8:00 AM
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Stocks are performing wonderfully this year. The S&P 500 (SPX) gained double digits through May for just the second time since 2000. We are, however, heading into the bearish part of the year. The S&P 500 Index has averaged just a 0.4% gain from June through August over the past 25 years. Seasonality doesn’t look to be on our side but what if we break it down in some other ways? Also, I listed some individual stocks that have tended to buck this trend.

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Breaking Down the June-August Period, Historically

Generally speaking, the June through August period has been bearish for the stock market. This year has been, so far, an outstanding year. Does strong momentum through May tend to carry on through the summertime?

The two tables below offer some insight. The first table looks back 25 years, and I break down the June through August returns based on the year-to-date returns through May. Looking at double-digit returns through May only yields three results so looking at times the S&P 500 gained at least 7.5% through May, the next three months were close to flat with 63% of the returns positive. So, it has been similar to the typical June-August returns shown in the table above.

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When you look back farther in history, back to 1950, when the index was up 10% or more through May, then the next three months have been better than at other times. Those 18 occurrences show an average three-month return for the S&P 500 of 2.42%, with 78% of the returns positive. Looking at the table below, the better the market has done through May, the better it tended to do over the next three summer months. 

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Similar S&P 500 Years

Here’s an interesting way to look at it. Going back to 1950, I found the January through May charts that most resembled the chart so far this year. The four years that most resemble 2021 as of now (at least using the method I used) are 1963, 1950, 1995 and 1964. I have the full-year charts for those years below. After the steady gains through May, anything can happen in the short term. In 1995, the S&P 500 continued its trek higher for the rest of the year. In 1950, stocks gave up all the gains over the next couple of months and then in the other two years the index meandered sideways for a bit. One commonality among all four of those years is that stocks were higher each time by the end of the year.

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Here is some data on the 10 years with the most similar looking chart compared to this year. The 10 years that looked most like 2021 so far averaged a gain of 12% for the rest of the year with all 10 of them positive. This is promising. Other years averaged a rest-of-year gain of 3.7% with 67% of the returns positive.

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Years in which the S&P 500 had a chart path like this year did well in the shorter term too. Over the next three months, in the 10 years that looked most like this year, the index gained just over 3% with 80% of the returns positive. In other years, the S&P 500 gained just under a percent with about 60% of the returns positive.

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Stocks That Buck the Trend

Just because the S&P 500 has tended to struggle over the next few months does not mean there haven’t been buying opportunities. The table below lists the 25 best S&P 500 stocks over the past 25 years, for the three months from June through August. Stocks needed at least ten years of data to be considered. Some popular tech names, including Apple (AAPL), Microsoft (MSFT) and Google (GOOGL) made the list.

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