August stock market slump is not backed by long-run data
MarketWatch columnist Mark Hulbert says August has posted positive average stock returns, challenging a familiar Wall Street warning.
By Frankie Delgado · News Reporter
3 min read
The August stock market has a bad rap on Wall Street, but MarketWatch columnist Mark Hulbert says the long-run record does not support the idea that the month is usually a loser for investors.
Hulbert pointed to data covering several major stock-market measures: the S&P 500 since its 1957 creation, the Dow Jones Industrial Average since 1896, and a broader U.S. stock-market series dating to 1793 from a database compiled by Edward McQuarrie, an emeritus professor at Santa Clara University.
Across those samples, Hulbert said, the average August return is positive. In the Dow and the broader market series, August’s average return is higher than the average return for the other 11 months of the year.
That does not mean August is a magic month for stocks. Hulbert said the return gap is not large enough to meet the 95% confidence level commonly used by statisticians to judge whether a pattern is reliable. Still, he argued, the data are a long way from showing August as a month when stocks typically fall.
Is August usually bad for the stock market?
Based on the historical figures cited by Hulbert, no. The average August return has been positive for the S&P 500, the Dow and the broader stock-market record he reviewed.
The warning has kept circulating anyway. Hulbert noted that Barron’s recently quoted an analyst saying stocks decline on average in August, a claim he said is contradicted by the longer data sets.
The “dog days” idea has another piece: the belief that August is especially jumpy because summer trading can be thin. Hulbert said that claim also does not line up with the volatility record.
When months are ranked by their average VIX level, August places eighth, according to Hulbert. The VIX is a market volatility gauge often used by investors to track expected swings in the S&P 500. An eighth-place ranking means August volatility has been below the average month, not above it.
Why does the August myth stick around?
Hulbert said it is unclear how the Wall Street belief took hold. He warned that analysts can produce misleading conclusions by choosing only a slice of the available data without a sound reason for doing so.
The likeliest argument, he said, is that August lands during a quieter stretch of summer, when trading volume tends to be lighter. That sounds plausible, but Hulbert said the academic evidence linking volume to future stock returns is weak.
He cited a meta review of academic studies on trading volume and prices. Of 13 studies, five found a negative relationship between trading volume and future returns, five found a positive one, and three found a nonmonotonic relationship, meaning the connection changed direction.
That mixed record leaves investors with little reason to treat trading volume as a calendar-based market-timing tool, according to Hulbert.
His takeaway is narrow but useful: stocks can fall in August, and markets can become more volatile in August. The historical evidence he reviewed does not show that the calendar itself is the reason.
This story draws on original reporting from MarketWatch.