U.S. stocks just wrapped up another strong month of gains with record-breaking levels, but history warns that August could quickly flip the script on this summer rally.
- The MAGS ETF is trading at new record highs. See the chart here.
The S&P 500, tracked by the Vanguard S&P 500 ETF (NYSE:VOO), rose for a fourth straight month in July, marking the 14th positive July in the last 15 years.
The Nasdaq 100 matched the trend, notching its 17th gain in the last 18 Julys, driven by surging tech giants and investor enthusiasm around AI.
Fueling the optimism, the combined market capitalization of the Magnificent Seven—which includes Microsoft Corp. (NYSE:MSFT), Nvidia Corp. (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOGL), Meta Platforms Inc. (NASDAQ:META), and Tesla Inc. (NASDAQ:TSLA)—hit $19.4 trillion, a record milestone.
But as July closes in record territory, the calendar itself casts a shadow over the rally. August has historically been one of the weakest months for U.S. equities, especially during the first year of a new presidential term.
The August Curse: What the Data Shows
Over the last 30 years, the S&P 500 has dropped an average of 0.56% in August, finishing the month in positive territory only 53% of the time.
Zoom in to the first presidential years—like the one we're in now—and the average August performance drops more sharply to a negative 1.38%, with just 2 gains versus 5 losses since 1995.
"After a strong July, SPX takes a vacation," said Bank of America's technical strategist Paul Ciana in a Thursday note.
Here's a look at recent August returns in first-year presidential cycles:
| Year | S&P 500 August Return |
|---|---|
| 1997 | -2.07% |
| 2001 | -6.77% |
| 2005 | -1.22% |
| 2009 | +1.79% |
| 2013 | -3.93% |
| 2017 | -0.19% |
| 2021 | +3.09% |
| Average | -1.38% |
The Danger Is Front-Loaded
The bulk of these losses typically arrive early in the month.
Between August 1 and August 15, the S&P 500 has averaged a 0.32% drop over the last three decades.
In post-election years, this mid-summer slump intensifies.
During the first half of August in such years, the S&P 500 dropped an average of -1.66%, with 6 out of 7 instances showing losses.
| Year | S&P 500 First Half August Return |
|---|---|
| 1997 | -4.89% |
| 2001 | -3.12% |
| 2005 | -0.12% |
| 2009 | +2.28% |
| 2013 | -2.67% |
| 2017 | -0.47% |
| 2021 | +2.11% |
| Average | -1.66% |
Bottom Line: Time To Bring Some Gains Home?
The U.S. stock market has surged sharply, with the S&P 500 jumping 33% since April's tariff-driven slump and setting repeated record highs in July.
Yet, July's market strength doesn't guarantee smooth sailing—August has a history of sneaking in losses, especially in post-election years.
With seasonal headwinds and investor complacency rising, a pullback may be just around the corner in the upcoming weeks.
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Photo: inray27/Shutterstock
