Broker Check

Summer Time and the Financial Markets

June 07, 2024

As we draw nearer to the Summer Solstice on June 20, it occurred to me that the anticipation of the long, lazy days ahead refer not just to the weather and prospective vacation plans, but to the financial markets as well. The behavior of financial markets in the summer months often exhibits certain patterns, although these can vary based on specific economic conditions and global events. Here are some general tendencies that have been observed historically:

  • Lower Trading Volumes: Many traders and investors take vacations during the summer months, leading to decreased trading activity, especially on Fridays!
  • The "Summer Doldrums: This term refers to the tendency for markets to be less active and more range-bound during the summer. Without major economic news or earnings reports, there might be fewer catalysts for significant market movements.
  • Increased Volatility: While overall activity might be lower, the reduced trading volumes can sometimes lead to increased volatility. Smaller trades can have a larger impact on prices, causing more significant price swings.
  • Seasonal Trends: Historically, certain sectors perform better during the summer months. For example, the travel and leisure sectors might see a boost due to increased consumer spending on vacations.
  • Market Events: Key events like Federal Reserve meetings, economic data releases (e.g., employment reports, GDP data), and corporate earnings reports still influence the markets. However, the frequency and impact of these events might be less pronounced compared to other times of the year.
  • Historical Performance: Some studies suggest that the stock market tends to underperform during the summer compared to other periods, often encapsulated in the adage "Sell in May and go away," which implies that investors might consider selling stocks in May and reinvesting in the fall.

It's important to note that while these trends can provide some insight, they are not guaranteed and are useful for informational purposes only. Each year can bring unique circumstances that influence market behavior and returns. At Compass Capital Management we stay informed so we can continue to provide the best advice and service to our clients. As always, thank you for entrusting us with the management of your investments. We value our relationship with you and look forward to continuing to help you achieve your financial objectives.