The S&P 500 could take a “break” and correct up to 9% between August and September. July and November tend to be the best months of the selective.
The Wall Street selloff on Monday could serve as a good reminder that the pandemic persists and that stocks may stumble when they trade near record territory.
While the downward pressure on stocks this time around has been fleeting, that doesn’t necessarily mean the end of volatility for markets this summer, argues Ryan Detrick, chief market strategist at LPL Financial.
“From a lower share of stocks, weak seasonality, a lack of bears, to a choppy second half of the year of a bull market, the remaining summer days could be conducive to an eventual pullback – a drop of between 5% and 9%, or even a 10% correction , “declares the expert.
Those were some of the “many reasons” why after a more than 90% rally, he thinks the S&P 500 Index “might finally be ready for a break, particularly when it comes to the often difficult months of August. and September “.
The chart shows the average monthly returns for the S&P 500 in August and September, since 1950, which have been largely negative. The study includes the modern S&P 500 index, launched in 1957, but also the performance of the S&P 90, its predecessor index.
Historically, the chart also shows that April, July and November tend to be the best months for S&P 500 returns. “Incredibly, we haven’t seen a 5% pullback since October,” Detrick said. The expert also pointed out that on average each year the index has registered three separate falls of the S&P 500 of 5% or more but that in this 2021 we have not seen any yet.
“This does not mean that a 5% correction is around the corner, but keep in mind that most stocks are already down as low as 10% from their recent highs , suggesting that the internal components of the market are a little weak and the risk is higher than normal, “concludes Detrick.