While the calendar says that today is August 1, August, as I have come to know it has come early this year. What do I mean by that?
While in politics, the media and electorate have become attuned to what is commonly referred to as “The October Surprise.” In financial markets, I have tuned into what I call the August Surprise. August has historically dealt us with exogenous events and soggy markets.
Let me give you a few examples:
- On August 2, 1990, the Gulf War began with Iraq invading Kuwait.
- On August 19, 1991, a coup d’état (in honor of the Paris Olympics I used the French term and accent aigu) where a failed attempt by former Soviet Union Communist Party hardliners to take back Russia occurred. I had a long day of work that was a monumental and volatile day. Over a few nervous days that coup was thwarted
- On August 31, 1997, Princess Diana was killed in an automobile crash. While not a market-moving event, nevertheless, it shook the world.
- On August 5, 2011, after the markets closed on a Friday, Standard & Poor’s removed the United States debt rating from AAA to AA+. The following Monday, the S&P 500 (SPX) declined 6.67%. It marked the beginning of a five-week-long pullback in the SPX.
In general, August is one of three months in which the SPX averages a decline and is just about tied with September for the second-worst month of the year. July on the other hand tends to be a positive month for the large-cap index. Headed into the last day of the month, indeed the SPX declined but pulled off yesterday’s end-of-the-month rally to finish the month 0.77% in the green. The NASDAQ 100 (NDX) which has been the market leader in 2023 and 2024, was not so fortunate, declining 1.63%.
This year, we had a few July surprises. To begin with, on July 13, Donald Trump narrowly avoided an attempted assassination. Then on July 21, President Joe Biden announced that he would not run for reelection. Up until that announcement, the markets were pricing in a Donald Trump victory and the “Trump Trade” was pronounced; with assets coming out of large caps into small-cap stocks. Risk-off also occurred with stocks fleeing growth and bidding up dividend/value names.
Furthermore, last week, Hezbollah fired rockets into the Golan Heights killing a reported twelve children. Israel responded. With strikes of their own in Beirut and Tehran. This exchange escalates the potential for a larger regional conflict. Furthermore, it will have an impact on the US Elections.
Up until July 30, earnings season was good, however, that good news was met with selling. Part of that reason was that the markets began to discount the Artificial Intelligence or AI trade. The hot AI stocks such as Nvidia (NVDA) experienced a pullback. Then on the evening of July 30, that all changed. While reception to Microsoft’s (MSFT) earnings report was met with the Bronx Cheer, semiconductor manufacturer AMD (AMD) and Meta (META, the company formerly known as Facebook) proved that the AI business still quite strong and the markets surged, pulling out of it’s July tailspin.
Just because the calendar has turned and markets staged a broad turnaround to the upside, it does not mean that the August effect won’t occur. The heart of earnings season is still set to occur. Today we get an earnings barrage from Apple (AAPL), Amazon (AMZN), Booking Holdings (BKNG), and Intel (INTC). Later in the month NVDA, Broadcom (AVGO), and Dell (DELL) grace us with their financial blessings (or curses).
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC were long AAPL, AMZN, AVGO, BKNG, META, MSFT, NVDA, QQQ & SPY, although positions may change at any time. The mention of a stock is not a recommendation and may not be suitable investments for your individual situations.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
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