While summer officially begins in late June, the reality is that most people really view summer as the days between Memorial Day and Labor Day. It's hard to believe that summer is coming to an end and we will soon be driving home from work in the dark after we set back the clocks.
It's also the season when many investors tend to be less aware of performance. So let's take a look at how the markets did this summer, and how they've done in the past.
Most investors know that the market has been doing very well this year, especially leading up to the summer months. In fact, from the beginning of the year up to Memorial Day weekend, the Standard & Poor's 500 index was up almost 16 percent for the year. But the summer is often thought of as a time when the market sells off (think "sell in May and go away").
It's a far from a scientific sample, but over the past week I've been asking clients if they have any idea how well the market did over the summer and to guess if they did not. Almost everyone thought the market was up over the summer and when asked why it was because they knew the market was up for the year.
As it turns out, between Memorial Day and Labor Day of 2013, the S&P 500 was down just about one percent and the Dow Jones Industrial Average was off about 3.2 percent (both are total return calculations).
I dug into the May 31st to August 31st time period return data supplied by Dorsey Wright & Associates, dating back to 1981. It turns out that 44 percent of the time, which equates to 14 of the 32 years, the S&P 500 was down an average of 5.8 percent. However, of those 14 years with losses, the six years with losses greater than the average were pretty bad: stocks fell 7.4 percent in 1981, 10.7 percent in 1990, 12.2 percent in 1998 and who can forget 2002's decline of 14.16 percent. That summer was even worse than recent poor-performing periods, like 2008's 8.4 percent summer slump and the 9.4 percent drop in 2011.
So even though the S&P 500 was down a bit for the summer, it was not all that bad when compared to the worst past declines.
That may account for why investors thought the summer market was actually up, and why they didn't seem to worry too much when they learned it was down. The fact that the market is up nicely for the year is sure to have softened the blow.
David B. Armstrong, CFA, is a Managing Director and co-founder of Monument Wealth Management, a Registered Investment Advisory firm located just outside Washington, D.C. in Alexandria, VA. David is routinely featured in national media sources and has been a speaker at several major industry conferences including Barron's Top Independent Advisors, Barron's Top Teams, IMCA, InsideETFs, LPL Financial Business Leaders Forums and Focus conferences. Follow David on and the rest of Monument Wealth Management on Facebook, Twitter, LinkedIn, YouTube, and on his "Off the Wall" blog which can be found on his website.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. All performance referenced is historical and is not guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor's 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.