We looked back on 20 years of historical data, and found that in 13 out of the past 20 years, the stock market has indeed declined on a month-on-month basis during the month of August. It also logged the worst performance, with a median month-on-month return of -0.8%.
While we can’t determine whether this phenomenon is a self-fulfilling prophecy, triggered by disappointment with second quarter earnings releases, or caused by the interference of ghosts in the financial markets, one thing is for sure – the months following August typically give the best returns.
The last four months of the year only provided negative returns (vs month-end of August) in seven out of the past 20 years. It must be noted that even on the years when returns for the period are negative, the losses are typically only in the low single digits with the exception of 2016 and 2008. Positive returns for the period, on the other hand, ranged between 0.5% and 29.0% with a median return of 4.2%.
Recommended strategy
Taking into consideration this quirk of the market, our typical strategy for this time of the year is to take profits in the days leading up to August and to take any big drops in stock prices during the month as an opportunity to reposition in the market.
In particular, the last four months of this year may prove to be exceptionally rewarding for investors, since both the Bangko Sentral ng Pilipinas and the US Federal Reserve are both widely expected to loosen their monetary policy in the last trimester. The first interest rate cut will likely be small (25 basis points) and the effect won’t be felt until next year, but signaling the beginning of the easing cycle will surely have a positive effect on markets. This rally will likely be broad-based, spearheaded by the property sector while banking names lag behind.
Still bullish on property
However, we acknowledge that property stocks have lost some of their appeal in recent days following the complete ban on Philippine offshore gaming operators (POGOs) announced by the President during his State of the Nation Address. Our stance on this is that the impact of the ban would have an outsized effect on certain developers, while the rest of the sector would suffer some indirect effects from the shift in the demand and supply dynamics of the property market. Long-term, however, we remain bullish on the sector and view it as the biggest beneficiary of the upcoming easing cycle.
At this point, we’d like to end with a quote from Nelson Mandela, who once said that “Courage is not the absence of fear, but the triumph over it.” That being said, this coming Ghost Month just might be the perfect time to confront your fear of ghosts and to get back into the stock market. Who knows, it just might prove to be your biggest triumph.
Financial market recommendations and comments on InsiderPH News belong solely to the analysts and institutions making them. They do not represent buy, sell or hold recommendations of InsiderPH News. Investments held by analysts or institutions may influence their recommendations. Investors should conduct their own research and carefully evaluate all relevant market information before making investment decisions. As always, the past performance of any investment does not guarantee its price appreciation in the future.
