It’s pretty much a giveaway when I bring this up now, near the beginning of August. But it’s true, the worst couple months for stocks has historically been August and September. That doesn’t mean you should be running for the exits though.
If you do a little research about the stock markets history you’ll find that September has the worst numbers when we’re talking about a percent change to the downside for stocks during the month. This is even looking back 100 years of data.
August hasn’t done so well either. That’s especially true when you look at the last couple decades. All this historical data can be a bit of cause for concern. What’s more is that we’ve been in a bull market for a very long time now and it seems that some people are beginning to get worried.
Should I worry about these next couple months?
Worry? Probably not. I think that’s a bit too harsh. There’s nothing in the data that is showing signs of a crash anytime soon. In fact, the data is showing the opposite. As far as I can tell it looks like the market will keep on trucking the 2nd half of the year.
I will say though, if you’ve been waiting on the sidelines then you’d be smart to hold off until October before getting into the market right now. History can play a role on people psyche which of course can have an effect on the stock market.
I’d expect some sort of selloff to happen in the next couple months. Actually, I think it’s well needed. It would be healthy for the market if it were to selloff a bit in the next couple months. When this happens I’d be looking to buy the dip on whatever looks good and is on sale. If you’re on the sidelines then these months are the best time for you to be watching to get into something.
Why do I still think it’s a good time to buy the dip we may get in the next couple months?
Even though history is against the market in the next couple months, there are other things in history that are going to be working in its favor. One of which is the way that the first half of the year performed. When the first half of the year does well so does the 2nd half of the year the majority of the time.
That’s not all though. We also had a strong January which usually coincides with a strong year. Also, you can’t forget that we’re in the first year of Trump’s presidency and the majority of the time the first year for a new president is favorable for the market.
Actually, it’s very favorable when we put the two of these things together. With the market doing well in the first half of the year and it being the 1st year of a new president we have data that goes back decades which has the market doing well in the 2nd half of the year in situations like this. How often though? How about over 75% of the time? Pretty strong numbers.
Lastly, and possibly most importantly, buying the dip that may come in the next couple months is a smart idea when we have many analysts telling us that we’re probably in a long term secular bull market that is just getting started. The secular bull may run for another 10 or 15 years and that wouldn’t be stretching from the truth of past history. In fact, it’s happened before in the 80’s and the 50’s.
That’s not to say that we can’t have a bad year or two along the way. Actually, you should expect it. When it does happen you should have enough cash to buy those dips too.
Of course, things can change between now and years from now, but when looking at the right now it would be hard for me to say that we’re going to crash anytime soon. If we have a pullback I suspect it will be no more than 20% down from the highs, and likely less than that. Just another great chance for the bulls to load up some more in their portfolios. I know I will be.