Dow drifts slowly into the ‘ dangerous’ months

Late summer isn’t kind to stocks, for several reasons

The stock market, which has powered to all- time highs this summer despite pricey stocks, Washington gridlock and sluggish economic growth in the U. S., now must face the calendar.

As July flips to August, the Dow Jones industrial average enters a twomonth stretch known for stock market slumps.

In the past 20 years, August is the worse month for the Dow’s performance, with an average drop of 1.4%. If you go back 100 years, September is the Dow’s worst month of the year.

This is known as “seasonal” weakness, a quirk of the market that tends to keep happening.

In 2015, the Dow swooned 6.6% in August and 1.5% in September amid fears that the economy in China, the world’s second- largest, was on the verge of amajor slowdown after Beijing devalued its currency.

In 2013, the Dow tumbled 4.4% in August during the initial crisis related to Syria’s use of chemical weapons, and on disappointing results from Macy’s and Walmart. The downgrade of the United States’ top- rated credit in August 2011 sent the Dow tumbling more than 4% that month, and the slide picked up in September, when fears mounted of Greece defaulting on its debt.

There are many theories as to why late summer is a time of malaise for stocks. They include: Thinly- staffed trading desks. August is vacation time, when trading desks are not fully staffed. As a result, even the slightest piece of unsettling news can cause a violent reaction in stock prices, especially when trading volume is low.

A different investor mind- set. Investors back from vacation often view the market through a new, more critical lens as they plan the rest of the year.

Reassessing the economy. A slow start to the year for the economy, followed by a second- quarter pickup, has conditioned investors to be nervous about the third quarter, theorizes Jim Paulsen, chief investment strategist at Leuthold Group.

However, this year the market is being driven by key bullish underpinnings, he says, with plenty of jobs and a broad global upturn in growth.