The July Effect

Mike Panzner sends us this Q3 variation of the January effect:

During the past two decades, the market has been up in the first month of a quarter 61.45% of the time and down 38.55% of the time, with a median gain of 1.22%. For the last two months of a quarter, the ratios are similar: up 62.65% and down 37.35% of the time, with a median gain over that latter two-month span of 1.17%.

However, over that 20-year period, the performance in both the first month and the latter two-month span of the third quarter has had more of a negative bias.

The first month of the third quarter, for instance, has only been up 45% of the time, while it has been down 55% of the time, with a median loss of 0.53%. For the period from August through September, the ratios are somewhat similar: up 50% and down 50% of the time, with a median loss of 0.01%.

More interesting, perhaps, is that when the first month of the third quarter is down — as seems to be the way things are shaping up at present, with the S&P 500 down 0.82% for the month, though there is still a week to go — the latter two months have been down 63.64% of the time, with a median loss of 2.03%.

One possible conclusion: a weak performance in the first month of the third quarter seems to boost the odds that the next two months will also be disappointing.

I’m not convinced that August will be a bad month for equities . . .

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. OldProf commented on Jul 31

    I do not believe that the result of today’s trading has any implications whatsoever for the next two months. I am surprised that anyone else does believe this. Is this any better than short skirts or the Super Bowl? The January effect had a causal model of sorts related to tax selling. What might be the cause here?

  2. Shyam Sankar commented on Jul 31

    OldProf, while I too am skeptical, you can’t preclude the possibility of there being a cause yet to be identified or discovered. But more importantly, it may not matter– it’s a conditional probability model based on data. The goal isn’t necessarily to explain why an outcome occurs, but rather predict the outcome itself. While I may feel that probabilities conditioned on SuperBowl outcomes are much more suspect than those conditioned on market activity, I should be more interested in their predictive power.

  3. Data Miner commented on Aug 2

    Hi Ho, Hi Ho, its off to mine data I go…

  4. christopherrobin commented on Aug 2

    Will the FED offer a lifesaver on AUG 8th ? Why does it seem they always give the market a nice wrapped up little candy that every one can suck on ?

  5. Mike commented on Aug 2

    The year is 1/2 over and the indexes have been relatively flat.

    It’s tru that the Naz has taken a beating but even the Naz hasn’t violated the October lows.

    Seems like nothing can drag this market down.

    I think the Fed will hike another 1/4 point on the 8th.

  6. brion commented on Aug 3

    i second the fed hike and raise you the muddle east sucking the rest of the helium from the bulls balloon.


  7. ndk commented on Aug 3

    “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” — Mark Twain

    Seasonality may have had some bearing on the market when events like the harvest had some bearing on the economy. At least hurricane season can still muster some good mojo, but by and large, I think the time of year’s effect on stock pricing is limited at best.

  8. Craig commented on Aug 3

    Ah city livers, some things are still seasonal.

    Get outside the city limits and seasonality happens.

    You can look for any home building/remodelling activity to fall markedly in the late fall.

    Also Starbucks. I’m here in Starbucks land and coffee drinks sell less in the summer. The fancy ice drinks and frappaccinos don’t replace the demand of winter coffee addiction. So look for Starbucks same store sales to increase in late October and fall in May/June.

    Here in Starbucks drive-through espresso land, the line lengths have been summer like. Winter lines cause traffic issues. I watch one Starbucks that actually hires a guy to help customers get out of the parking lot because the drivethrough line is out of control in the winter.

    Anyone want to go back to school shopping in this heat? NO? THAT is seasonality.

    Also more vacations/less traders/investors= less volume=less demand=lower equity prices, seasonally.

    BTW, BB unabashedly raises 25 basis pts. on the 8th.

    He has no choice but to kill the economy to keep a handle on inflation. Buckle up!

Read this next.

Posted Under