Liz Looks at: the Market’s Sideways Summer
Sideways Summer
As we close out the month of May, which started slow, got ugly in the middle, and appears to be finishing quietly, investors are wondering what the summer months hold for markets. Spoiler alert: I don’t think markets are going to move much in either direction until closer to fall and I’ll outline the reasons here.
First, although I am not a big believer in seasons or certain months of the year being useful indicators of returns, summer usually does see less market action than other periods. This is referred to as “seasonality” and is based on the belief that market returns tend to peak in May and relax through June, July, and August.
What’s interesting is that return data since 1950 for the S&P 500 show July as the month when three-month forward performance slows down, not May. Nevertheless, July falls squarely in the “summer” camp and could be a pattern that at least rhymes with history this year, and is further emphasized by the remaining two forces…
Second, after periods of very strong economic data or very strong market movement, there tends to be a short-term pause. As I’ve covered in a previous column, economic data that is measured year-over-year for the months of March through June are going to look very strong compared to the doldrums of 2020. Same goes for corporate earnings. And those metrics have indeed come in strong so far.
Moreover, in late April, 95% of S&P 500 stocks were trading above their 200-day moving average, which is very high by historical standards. When this measure is so high, the short term (next three months) has typically produced uninspiring results.
Third, there aren’t many big catalysts or events that would be expected to move markets in coming weeks. Earnings season just ended and won’t kick off again until mid-July, the Fed continues to be patient and careful not to spook markets—and the economy hopefully will hum along at a comfortable reopening pace through summer.
The real test is how patient we can be as investors. Flat markets are not down markets. Sideways may be boring, but is not bad. Choppy weeks are not reasons to sell. I think there is more market upside to be seen in this economic cycle; it just might need a break before the next move.
-Liz Young, Head of Investment Strategy at SoFi
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS21030102
All your finances.
All in one app.
App Store rating
