This week marks the beginning of one of the most seasonally weak periods for stocks. The coming days of August are traditionally among the worst for average S&P 500 performance during the past 22 years … which means investors should brace themselves for some volatility.
Since 1990, the SPX has averaged a loss of 0.9% for the month of August compared to an overall monthly average gain of 0.6% for all months of the year. Breaking it down further, August shows positive returns 57% of the time at an average of 2.3% while losing a dramatic 5.1% the remaining 43% of the time.
The negative tendency of August should have all investors checking their portfolios for a few things.
First, are there any market outperformers that you should be taking profits from? With earnings season more than halfway done, the market could become stagnant as fundamental drivers, outside of economic news, will taper off. Companies that have posted nice earnings-related spikes like Tripadvisor (TRIP) and Herbalife (HLF) should be on your screen as profit-taking opportunities. For our money, trailing stop-loss orders are the best way to take the emotion out of trimming these profits.
In addition to trimming the profit tree, potentially poor August trading means it might be time to hedge your portfolio with exchange-traded funds that can profit when the market declines. Here are a few funds to consider: