How Do Stocks Finish the Year When Positive Through August?

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I usually think of the end of August as the beginning of the home stretch for a market year.  The finish line is in sight, and from here on out, market professionals will be especially focused on their performance because track records get locked in at the end of the calendar year.  In a year that stocks have risen, underperforming managers will often feel pressured to chase a rising market, which means that when stocks are positive through August they tend to continue to rise through year end.

Since 1950, the S&P 500 has been positive through August 42 times.  The market has continued to rise in all but eight of those years.  The average increase between September and year end has been 3.9%.  The best year was in 1954 when stocks rose 21% in the final four months of the year.  Last year stocks rose 13% in the final four months, which was the fourth best close of the year since 1950.

Of the eight times that stocks have been negative, four of them happened when the market was only up slightly through August.  The worst final four months of the year came when the market was up the most though.  Thanks to the crash, in 1987 the S&P 500 was down 25% between September and year end.

Positive through August

 

Source: Yahoo data, Avondale