At the start of July, I came across a chart similar to the one below:

What is it telling us?

Five years might not be enough statistically but at least the Nasdaq Composite has been pretty strong in July (green line period) and then pretty weak in August (red line period) and in September as well.

As the Nasdaq Composite has been outperforming the overall market over the last few years, I wanted to dig a bit further to know how this market’s leaders could behave.

Nasdaq Composite vs S&P 500.

Monthly average returns for the Nasdaq Composite during different periods:

Since 1971, January, April, November and December have been in order the best months for the Nasdaq Composite.

Looking only at the last 10 years, July was the best month with the following month of August and September offering bad returns.

Monthly returns for the Nasdaq Composite since 1971:

September has been a pretty bad month over the last 40 years.

We know that the market has been mainly driven by a few sectors, industries and names. For the S&P 500, that would be the FAAMG names:

Facebook, Amazon, Apple, Microsoft, Google.

Those market leaders have been massively outperforming the overall market, making the market breadth very poor and the performance concentrated in a small number of names.

S&P 500 vs FAAMG

The outperformance started in 2015 with an acceleration in 2019 and more recently since the market lows in March 2020.

How have the FAAMG performed recently?

Average monthly returns for the FAAMG between 2013 and 2019:

It is clear that July has been the best month for the FAAMG stocks and only small up in the next following two months.

This seasonality could be seen for the Nasdaq Composite but the same could be said for the S&P 500.

The same seasonality was underlined by JP Morgan (Image from themarketear.com) for the S&P 500:

Same finding here with August and September offering bad returns historically for the S&P 500.

Based on the above, will history repeats itself again this year?

Odds are here but it is fair to say that 2020 has been challenging many odds so far. As usual, there is nothing granted.

But it might be a Sell in July instead of the usual Sell in May and Go Away…

I hope it helps,

Gregoire

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