August usually isn't a great month for the S&P 500. But that doesn't mean you need to bail out.
Seven stocks in the index — including tech stocks like Salesforce, Nvidia and Synopsys — outperformed the S&P 500 during August in each of the past five years, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. These consistent winners in August are a good reminder of how it's possible to make money during a tough month.
"This August, however, has two factors working in its favor: (The third quarter) has positive momentum after an oversold (first half), and it so far lacks the sort of major shocks that can hit investor confidence and therefore valuations," said Nicholas Colas of DataTrek Research.
Here's What Happens To The S&P 500 This Month
It's only natural for investors to fret over the S&P 500 in August. August is now the second-worst month of the year for the S&P 500, says "Stock Trader's Almanac."
The S&P 500, since 1950, only rose 0.03% on average during the month. And it's usually even worse during a midterm election year. During those years, the S&P 500 actually dropped 0.2% on average in August.
This year there's more to worry about in August. The S&P 500 dropped an average of 2.2% in August during down years for the market since 1958, Colas says. And it's fallen during more than half of those periods. The index is down 13% so far this year.
August is also a month of surprises. The S&P 500 dropped 9.4% in August 1990 following Iraq's invasion of Kuwait.
"The S&P 500's performance in August during down years can be a coin toss, but is skewed slightly to the downside," Colas said. "We generally advise caution in August because it tends to be more volatile than most months as measured by the VIX."
But here's the good news: August tends to kick off somewhat of a fall rally. The S&P 500 gained an average of 11% from the lows of August and September through the highs of the fourth quarter. That's even better than the so-called "summer rally."
And you can find winning stocks in August if you look for them.
Salesforce Outperforms In August
If you're looking for a stock that defies general malaise in August, you'd do worse than looking at Salesforce.
Shares of the company, which makes online systems that help companies' sales teams, are a standout in August. Not only have its shares topped the S&P 500 in August of every year in the past five years, they delivered an average gain in the month of 13.2%. That's higher than any other S&P 500 stock that's outperformed in August. Perhaps more notable, not once have shares of Salesforce fallen in August going back five years. Even in August 2019, when the index dropped 1.7%, shares of Salesforce rose 1%.
Much of how Salesforce's shares do will hinge on what the company reports for second-quarter profit on Aug. 24. Analysts think the company will make $1.03 a share. That's actually nearly a third less than it made in the same year-ago period.
Other Tech Winners In August
And it's important to note that the two other top consistent winners in August are tech stock plays. High-end chipmaker Nvidia, which just stunned investors with a disappointing outlook, is usually a big winner in August. Its shares rose 11.4% on average in August in the past five years, topping the S&P 500's 2.3% average gain in that time.
Much of Nvidia's big win happened when shares rose 26% in August 2020. The S&P 500 that month rose only 7%. NVDA stock, though, could use an August bounce this year. Shares are off 41.8% just this year so far.
And chip equipment maker Synopsys is another August champ. Shares gained every August in the past five years by an average of 10.1%. And unlike many technology companies that are retrenching this year, Synopsys' profit is seen jumping more than 23% to $8.46 a share.
So, yes, it's wise to expect volatility in August. But you can still find stocks worth sticking around for.
Top S&P 500 Stocks In August
All topped the S&P 500 during the month in each of the past five years
| Company | Ticker | Average August gain in the past 5 years | Sector |
|---|---|---|---|
| Salesforce | 13.2% | Information Technology | |
| Nvidia | 11.4 | Information Technology | |
| Synopsys | 10.1 | Information Technology | |
| Norwegian Cruise Line | 10.1 | Consumer Discretionary | |
| Generac | 9.6 | Industrials | |
| Intuit | 6.7 | Information Technology | |
| Microsoft | 5.1 | Information Technology | |
| S&P 500 | 2.3 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
