Market fluctuations in August

The arrival of August, a holiday month for the vast majority of the population in the northern hemisphere, brings a change in the daily routine: cities are emptier, there is less traffic and offices are run by a skeleton staff.

The days are usually bright and sunny, and we spend them with family and friends. But contradictory as it might sound, for many investors this month is anything but quiet.

Historically, the month of August has been associated with volatility. Some attribute this to the low levels of trading on the market, which accentuate the fluctuations in asset prices. The truth is, though, that a record number of events with an impact on the markets have occurred in this month.

August events through the years

2019- Political Uncertainty Index reaches record highs due to tensions between the US and China.

2015- China devalues its currency and the Dow Jones loses more than 1,500 points the following week.

2011- Downgrading of US debt rating.

2010- Widespread corrections worldwide due to fears of economic contraction.

2007- A well-capitalised French bank restricts investors’ access to funds with exposure to subprime mortgages, citing an evaporation of liquidity.

1997 and 1998- Significant global corrections in risk assets due to the ‘Asian Contagion’ and the collapse of the Long Term Capital Management investment fund.

1990- Iraq invades Kuwait.

1945- The US drops atomic bombs on Japan.

Summer holidays and market volatility

It is no wonder that, historically, August statistics have been less than positive. In fact, since 1992 the increases in the levels of the VIX (the index that measures the volatility of the S&P 500) have always been higher in this month than in any other month of the year. In other words, August is the month of the year with the highest volatility.

Other statistical data follow this dynamic: for example, in the case of global equities (taking data from 1987 as a reference), the average return for the month is negative at -1.5%, this being the worst month of the year (followed by September and June).

All of this is particularly true in terms of historical behaviour. It also advises caution, especially when we consider the robust rebound of risk assets since the March lows.

There is no doubt that in the last decade the markets have shown an addiction to stimulus packages to maintain their upward trajectory, ignoring or minimising the valuation ratios which themselves have been considerably demanding for the last couple of years.

August is also a month of tranquility

As we have already seen, the possibility of volatility during the month of August is quite high from the historical point of view. But the most important thing is to ensure that your investments are aligned with your risk profile and tolerance. We believe that our scenario will remain unchanged – especially in terms of valuation – so in the current circumstances the ‘buy and hold’ strategy would not be appropriate.

It is important to have a dynamic strategy that is fast enough to take advantage of market fluctuations. Check with your investment advisor, who will be able to offer you a range of products suited to your needs.

Happy summer, and don’t worry about your investments during the holidays. Delegate that responsibility to your advisor and your private bank.

 

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For more information, please contact your Investment Advisor.