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Because August in a pandemic for stock market investors is a time of vigilance



Summer Dog Day on Wall Street is upon us.

The ancient Greeks referred to the so-called “dog days” in late July and early August, as the period when the star Sirius – also known as Alpha Canis Majoris, or dog star – seemed to rise in front of the sun as the hottest part of summer, prone to bring fever or catastrophe.

That description, perhaps, is a suitable way to think about the August markets in the midst of a pandemic that continues to chase investors, wreaking havoc on global economies.

“Historically August has had rather subdued performances … given the fluid situation of the coronavirus, the uncertainty regarding the timing of the fiscal stimulus and signs of economic data stall, August could be more turbulent than it has done in the past”

;, Lindsey Bell, chief strategist of Ally Invest told MarketWatch.

Indeed, August tended to be more prone to unexpected turbulence than its traditional reputation as a time when traders and investors reveled before the start of autumn.

Last year, for example, the month started with President Donald Trump rekindling Sino-American trade tensions through a series of tweets indicating that the United States would impose 10% levies on Chinese imports starting September 1. . In 2017, a flare-up tensions between North Korea and the United States drove the Cboe volatility index
VIX,
-1.21%
,
a measure of the volatility implied in the S&P 500
SPX,
+ 0.76%
,
at its highest level up to that point of the year.

The Chinese yuan
CNYUSD,
12:00

CNHUSD,
+ 0.18%

the devaluation and slow economy in 2015 helped fuel the worst performance in August of the past 17 years, amplified by the anguish of a rate hike by the Federal Reserve to normalize monetary policy (which seems so far now) and from the weakness of global energy markets.

The list of tumultuous moments in August continues, including Russia’s default in 1998, but this moment in history may seem more uniquely ready for turbulence.

There is probably more uncertainty about the future of the economy and the markets that revolve around the answers. And for many, a new round of fiscal stimulus for Americans affected by the COVID-19 pandemic tops the list of concerns.

Check out: Coronavirus Update: 17.6 million cases worldwide, with 4.6 million in the United States, starting August 1st.

“I think that in terms of market prospects we are all focused on the laser on two things: 1) the result of the fiscal / extended stimulus [unemployment] benefits and 2) the path of the virus, “Robert W. Baird & Co. market strategist Michael Antonelli told MarketWatch

“If I had to weigh the importance, No. 1 is 75% and No. 2 is 25%,” he said.

“August is notoriously slow but these two things are unique for 2020 and could increase volatility,” said Antonelli.

Small progress was enough to support Dow Jones’ industrial average
DJIA,
+ 0.43%
,
the S&P 500 and the Nasdaq composite index
COMP,
+ 1.48%

ends Friday in positive territory, along with a huge dose of Apple’s share
AAPL,
+ 10.46%

rally, Friday.

Discussions between Trump administration officials and congressional Democrats over a coronavirus aid package continued over the weekend after Democrats rejected the administration’s offer for a short-term extension of the weekly unemployment benefit. of $ 600.

Emerging from the weekend without a path to further Congressional aid for Americans and suffering societies, new volatility in the markets may begin to begin the month.

The economy shrank to a record 32.9% annualized in the second quarter, highlighting the fact that this is the deepest recession in American history.

To read: “A massive social economy”: federal aid prevents an even more marked drop in GDP

Also: MarketWatch Coronavirus Recovery Tracker

As MarketWatch’s Jeff Bartash says, the severity of the economic downturn will return to the center of attention next week when the July employment report is released on Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled 7.5 million.

Economists surveyed by MarketWatch predict on average that the United States added around 1.5 million jobs in July.

Concern about the new shocks to the financial system in August and the coming months could also explain why gold prices
GOLD,
+ 2.33%

it closed with a new high on Friday and is closing on a number of rounds at $ 2,000 an ounce. In the meantime, Cboe’s volatility index, which tends to rise when markets fall because it reflects purchases in options contracts designed to insure against falling stocks, has been trading well above the historical average.

The index, which its ticker, VIX colloquially refers to, has a long-term average of 19.38 and hit an all-time high above 80 in March, a week before stocks hit a recent nadir on March 23 , in the worst case of the outbreak of the new coronavirus strain causing COVID-19.

VIX, which closed at 24.46 on Friday, has been trading above its historical average for 111 trading days, with 117 trading days representing the longest trading above its average since January 11, 2012, according to Dow Jones Market Data.

Despite the anguish over the prospects for August, however, there is cause for optimism.

The August performance in the presidential election years was stellar. August performance increased by 0.63% on average, as measured by the monthly returns for the S&P 500 index since the beginning. However, during the election years, August returned an average of 2.87%, marking the best monthly performance by a certain margin, with July returns during the election years averaging 2.08%, show market data of Dow Jones (see attached table).

Source: Dow Jones market data

So far, July has lived up to its billing and then some, with the S&P 500 rising 5.51% in July, the Dow returned 2.38% and the Nasdaq Composite posted a gain of 6, 82%, following the unlimited appetite for technology and commercial stocks.

To be sure, this is also a year of a pandemic, so anything could happen.


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