August: The Month That Puts the "Augh" in Stocks

Ah, August! The month where summer is in full swing, vacations are planned, and investors decide to throw a party of volatility. If you’ve ever wondered why the markets seem to have an existential crisis in August, you're not alone. It’s like the market collectively says, "Should I stay or should I go?" and investors are left wondering if their portfolios will need a lifeguard.

A Historical Rollercoaster

Historically, August has been a month of unpredictable market swings, leaving investors reaching for their seat belts (and occasionally their antacids). Let’s take a look at some numerical examples that illustrate why August has earned its reputation for volatility.

• August 1998: The Russian financial crisis caused the S&P 500 to drop nearly 15% from the start of the month to the end. It felt like the market took a nosedive and forgot to pull the parachute.

• August 2011: This month was another stomach-churning ride as the S&P 500 plunged 17% following the U.S. credit rating downgrade. Investors watched the market like a horror movie, peeking through their fingers.

• August 2015: The infamous “Black Monday” saw the Dow Jones Industrial Average plummet over 1,000 points in a single day, the largest point loss at the time. It was the financial equivalent of a rollercoaster that forgot to finish its loop.

• August 2019: Not to be left out, this August included the S&P 500 experiencing a series of wild swings, with an overall drop of around 3%. It was as if the market was trying to dance the cha-cha: two steps forward, three steps back.

• and, of course August 2024.  As of the time of this writing (9:35am ET on August 5), S&P500 is down 9.7% off its recent high, VIX just hit 60 (up from 12) and BTC is down 24% since the start of August (with many major crypto currencies – ETH, SOL, AAVE down over 30% in a few days).
  

Why All the August Angst?

So, what’s behind August's penchant for drama? Several factors contribute to this phenomenon:

1. Low Trading Volumes: Many traders and investors are on vacation, leading to lower trading volumes. This can exaggerate price movements, like a seesaw with only one person on it.

2. Geopolitical Events: August seems to be the month when world leaders decide to stir the geopolitical pot, creating uncertainty that spooks the market. It’s as if they all got the same memo to take up drama as a summer hobby.

3. End-of-Summer Blues: As summer winds down, market participants start to refocus on upcoming economic data and policy decisions, leading to increased speculation and market jitters. It’s like the market has to go back to school and isn’t quite ready.
   

How to Navigate the August Avalanche

For investors, the key to surviving August’s antics is to stay calm and remember that volatility is a natural part of the market cycle. Here are a few tips to keep your financial sanity:

• Diversify: Ensure your portfolio is well-diversified to cushion against the wild swings of individual stocks. Include alternative investments which include strategies specifically benefitting from volatility and designed to weather all types of market cycles. (A little plug: we can show you some examples, https://www.gallerynetwork.co/contact).
  

• Stay Informed: Keep an eye on economic indicators and geopolitical developments, but don’t let them dictate your every move.
  

• Long-Term Focus: Remember that investing is a marathon, not a sprint. Keep your long-term goals in mind and try not to panic at every twist and turn.

So, as August rolls around, embrace the volatility with a sense of humor and a long-term perspective. After all, what’s a little market mayhem between friends? Just remember: while the stock market may put the “augh” in August, savvy investors can keep their cool and maybe even enjoy the ride.