Dow Jones

5 Reasons July Is a Great Month for Stocks

Brittany Lyte — Thu, 23 Jul 2015 13:00:09 +0000

If you think traders are off summer vacationing, think again. There's a lot of action in the markets during the summertime, particularly in July, which makes it a great time to rebalance your portfolio — or pull the trigger on the trades you've been scheming about. No doubt, timing the market perfectly is practically impossible. But the historically well-performing month of July is better than many for making positive returns.

Read on for our roundup of reasons why July is a great months for stocks.

1. School's Out

Okay, so we lied. Some traders really are on vacation in the summer. But that's good news for you. Here's why: While they're off teaching their toddlers to swim, surf, and make sand castles, the market's value tends to drift higher from where it should be.

"During… summer, professional investors are collectively less focused on news and as a result, information is incorporated into stock prices more slowly," MIT researcher Lily Fang said. This effect is particularly strong for negative information because taking advantage of negative news by, for instance, short-selling, is more difficult and requires close attention — a scarce resource in July. "Think about how traders spend their summers," Fang said. "They're on the beach with their kids. They're traveling overseas with their friends. They're rightfully enjoying the holidays and as a result not paying as much attention to market news."

Just beware of the "after holiday effect." Stock prices tend to do the worst in September — when summer vacation's over — because investors' kids are back in school and they once again have the time to monitor the markets obsessively, according to Fang's research.

2. Midsummer Rules Dow Jones

The Dow Jones industrial average has posted a positive July return in seven of the last 10 years. The average gain during that time span was almost 2%. That's a pretty spectacular indication that July is the golden time on the Dow to invest.

3. Historic S&P Data Shows Positive Returns

July's market returns have been up 35 of the last 60 years since 1950, according to S&P 500 data. The average return over that period was 0.8%. That's pretty good, but the kicker is that in recent years the month has performed even better. Since 2005, July has had six up years with an average return of 1.6%. A whopping 80% of all trades have been positive in the last decade on the S&P 500 Energy Sector. So if you're planning to invest in July, you'll do well to pick an energy industry stock.

4. Nasdaq Comes Alive, Too

The Nasdaq composite, which averages a 2.1% gain for the month of July, has posted a positive return in six of the last 10 years.

5. Chinese Stocks Bounce Back

For the last five years, the MSCI China index has been one great big slump in the first six months of the year, typically losing about 10% of its value. Ouch. But July has proven to be the bounce back month, marking the start of a season of strong returns that more than make up for those earlier losses. In 2014, the index fell 3% in the first six months, but then gained more than 10% starting in July.

"There is no denying that a pattern has emerged in Chinese equities in the last few years," said Damien Fahy of the consumer website Money to the Masses. "Its roots lie in the Chinese New Year and corresponding government stimulus which tends to rally markets." Although this July has been unusually tough for Chinese stocks to date, the month isn't over yet.

Do you invest in July? Why or why not?

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Bear Markets Explained

Andy Boyd — Mon, 26 Sep 2011 09:48:44 +0000

Residents of the financial world have a way of creating terms for particular market trends that sound relatively inconspicuous to the average layman, even though in reality those trends signify a time for concern. A good example of this is the bear market. This is not a place where you would go to get a good discount on a few Theodore Roosevelts ("teddies"). In fact, a bear market actually has more in common with an angry grizzly you might encounter in the forest: it is shocking, can instill considerable panic, and can leave you without a leg to stand on.

So what exactly is a bear market? It's the opposite of a bull market (which is why the bear market is sometimes known as a "heifer market"). A bull market is when traders are making a killing on the stock exchange, prices and indexes are rising, people are making money, and optimism fills the offices of the NASDAQ and NYSE. Unfortunately, this means that a bear market is when share prices are falling, traders are panicking, and the economy looks perilously close to tail-spinning out of control. It is not a good thing, as the poverty and average living conditions of the Great Depression demonstrated. (See also: Survive the Bear Market: 10 Steps to Ride the Downturn)

A bear market does not have a strict definition, but it can be classified as an overall price decline of 20% or more that lasts over two months. Among the myriad problems related to a bear market is the period of time it can last. Just as a bull market can last for months or even years, so can a bear market. The oil crisis of 1973 and the energy crisis of 1979 were constituent components of a long bear market occurring at that time, which lasted from 1973 until 1982.

Bear markets can also shatter the stock exchanges. The Wall Street Crash of 1929 led to the Dow Jones Industrial Average falling from 381.17 in 1929 to just 41.22 by 1932. Billions of dollars were lost ($14 billion on Black Tuesday alone), and it took years for the USA, and the rest of the world, to recover.

Investors and non-investors should pay attention to a bear market's universal effects. Having an "it only affects the fat cats of Wall Street" mentality would be seriously misjudged, as a bear market can infiltrate our everyday lives. Here are some ways a bear market can make things more difficult for everyone.

Fear Becomes a Cycle

Traders can be like sheep in moments of financial turmoil, which only exacerbates the problem. Everyone starts selling to get out of a plummeting price drop. Companies lose money and value because of the mass offloading of shares, so in the long run they try and save money by not investing or hiring. Jobs become harder to find. As a consequence of there being fewer people in employment, less money is spent, and companies are forced to save more money by cutting back on staff and investments.

Years of Saving Can Come to Nothing

All that money invested in a safe pension fund will not be making the same kind of interest you initially hoped for. Savings in 401(k) plans can be decimated by bear markets, and since a bear market can happen at any time, it may hit just before you are due to retire.

People Become More Polarized

In times of bull markets, people are generally content, and the majority follow centrist politics, thinking, "Well, I have money and food, so this government can stay." However, because bear markets make people poor, they start to look for who is culpable, and the mindset becomes, "Well, I have no money and no food, so this government has to go." This is a great time for radicals to slip in and get into power with promises of economic resurgence and food on the table. This is one of the many reasons that a certain Herr Hitler came to power in Depression-devastated 1930s Germany.

People Become More Egocentric

They will fight over a job, over food, over a place to live. They are less likely to help others in need, as the individual's focus becomes smaller and smaller. Conversely, in a bull market, people are more likely to share.

Charities and Non-Essential Spending Programs Suffer

Why give $50 to a charity like the Salvation Army when you are not sure if there will be enough money left to feed your own family? And many smaller, less-supported charities fail.

Nationalism Rears Its Ugly Head

Immigrants and people on welfare will suffer various problems from prejudice to soul-destroying cuts in benefit provisions. In times of monetary strife, people will look for any scapegoat to vent their frustration upon, and it's often the new guy on the block who's to blame in mainstream opinion.

Paper Isn't Worth Anything

Bear markets are the times when those people who kept pennies in jars or bills jammed under their mattress are not seen as slightly eccentric, but as wise savers. Hard currency becomes key as share certificates and investment reports become worthless pieces of paper.

Physical Assets Are Liquidated

Smart investors might lose money in a bear market, but being smart means they have savings or invested in physical assets that can be liquidated, such as gold coins or silver bullion.

Personal Relationships Can Change

Bear markets can also affect the sexual dynamic of the working population.

It would be prudent to keep an eye on the Dow's average. The Dow Jones Industrial Average is based on the daily trading peaks and troughs of 30 of the largest U.S. based companies (such as ExxonMobil, Walmart, and Microsoft). It has been calculated that a bear market occurs when the Dow's average is 9,378 or below. This happened recently, when the average closed at 6,547 at one point in March 2009.

Perhaps the best way to sum up a bear market is to quote Charles Jones, who is Professor of Finance and Economics and chair of the finance and economics division at the Ivy League Columbia Business School, "Definition of a bear market: when it hurts to look at the stock tables in the newspapers in the morning."

Guest Post Blurb:

This is a guest post by Andy Boyd. Andy is co-founder at CreditCardCompare.com.au, a leading credit card comparison website based in Australia.

This article is from Andy Boyd of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Recession Depression

Andrea Karim — Wed, 28 Feb 2007 22:26:37 +0000

Yesterday's market "correction" had a lot of investors experiencing acute arm pain as they clutched their chests, watching the Dow Jones average plummet over 200 points in the course of about 2 seconds. The swiftness of the drop was attributed to a computer glitch, which isn't exactly reassuring, either from a technological standpoint (how did that happen???!?!) or a practical one (it still dropped over 500 points, right?). The Shanghai index correction was the obvious impetus for the drop, and that makes me feel even worse.

I don't have much dough invested in the stock markets, save for a paltry sum that fluctuates in my IRA, so I wasn't as concerned about the drop as say, my dad, whose entire 401k is directly affected by market swings.

Despite this, I was definitely clutching my chest when I heard that former Federal Reserve Chairman Alan Greenspan predicted a recession for the US economy. Some economists have been predicting a recession for a while, based on the housing slowdown/slump or other indicators that most of us don't think about much. Other economists with actual jobs have predicted that a full-blown recession is not, in fact, likely, but it certainly got me thinking: how does one prepare for the possibility of a recession?

There's lots of info out there on how to survive a recession as an investor, but what about us regular Joes who are simply worried that we won't have a job should the economy turn southward?

Well, there are some articles and books on the subject. Some bloggers are giving it some serious thought and have their own ideas on the subject. Forums are filled with helpful (and not-so-helpful) tidbits. Paul Kirvan penned some advice back in 1991 regarding this exact topic, when it may have been even more relevant than today.

Here are some ideas that I am exploring:

Start your own business. Be prepared to start working on a consultant or freelance basis if you lose your permanent job, and get some great tax write-offs in the meantime.
Look around your workplace and find ways to make yourself more useful. Job security is when no one else can do everything that you are doing.
Know ahead of time if you qualify for unemployment. If you don't, look into that emergency savings account that you've been meaning to get started for the past 6 years.
Take the classes that you need to take now. Make sure to include the costs of continuing education when you file taxes. You can probably make a shift in your career with relative ease if you pick up a few new skills or take a risk and try out a new field altogether.
Develop a love of peanut butter and jelly sandwiches.
Get a roommate (shudder).
Join the Compact. Not sure if I WANT to do this, but I might have to at this rate.
Budget. Budget. Budget.
Chose a hobby that will actually promote your career. Volunteer for a professional society or nonprofit organization that corresponds to your work. Life shouldn't be all about work, but these are great networking opportunities, should you ever need them.

How about you guys? Are eBay careers the way to go? Do you have any ideas for recession prep besides what we normally tout to our readers (Save, Budget, Buy Used, Library Card, etc.)?

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: