Hi all! Again, I must start out by saying that I’m writing this article in mid-July. June was a roller coaster ride for the stock market but had a little bit of a budding rally here towards the end of the month. In a typical year, July isn’t that bad of a month. You see the S&P 500 up 0.05% on average, going all the way back to 1950. But July is usually the weakest month of all the summer months. And in years where the S&P 500 is down 10% or more through June, well, we’re looking at a tale of two markets here. The S&P is down almost half a percent and is positive less than 50% of the time.

The other thing that complicates the S&P 500 in the month of July, outside of being down through June, is that big elephant or donkey in the room known as the midterm elections. Typically speaking, the S&P 500 is weaker during midterm years than it is in non-midterm years. And when the market is down 10% or more, those losses are magnified in midterm years. If we look at the S&P 500 average monthly returns in midterm years, going all the way back to 1946, it just looks like garbage, basically, from June through September. July, you get a little bit of a bump compared to say June or August, but still not very good-looking. And you see just from July through September, a pretty mean selloff, but by October, we typically see the market rip
off those September lows through the end of the year. The scariest part of the year in midterm years is actually during the summer.

When you look historically at markets where the S&P has been down 10% or more through June, and in midterm years, the weakness is just much too strong to ignore. So, make sure you’re taking precautions. You’ve got sell stops on your trades if you’re a trader, or if you’re a long-term investor, you might want to buy these dips, but knowing you’re going to have to have a strong stomach for what could be a volatile month here in July. As I’ve been saying all year, the back half of 2022 should be very nice.

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