Preparing for the Battle Ahead

There are times when trouble and difficulty seem inevitable. The stock market has been roaring like a lion, since March. However, we are facing a challenging time of year, when there is typically a fierce battle between the bulls, who believe the market will rise, and the bears, who believe the market will fall. This battle is set to intensify over the next couple of months. Thankfully, with a solid plan and with an attitude of supplication, we feel victory is attainable.

“God is our refuge and strength, an ever-present help in trouble.”  – Psalm 46:1

We are heading into a seasonably weak period for stocks. Every year is different, but, historically August and September tend to be the worst performing months of the year. A recent research report from Bespoke Investments highlighted that, over the past ten years, stocks tend to peak on July 26, trend sideways or lower in August and September, begin to tick back higher into October, and finally make new highs again near mid-October. Will that trend happen again this year?

It certainly makes some sense. After the worst GDP decline on record, when U.S. production shrank at an annualized rate of 32.9%, it wouldn’t be too surprising if stocks retreated during the current earnings season. With many companies shut down during the second quarter and some just starting to open up now, the economic numbers are sure to be frightening over the next month or two, giving the bears some ammunition to take down the markets.

This year, August could be challenging as well. We have seen quite the battle march from the market bottom and soon there could be a round of profit-taking. This month is usually a period of lighter trading volumes, as investors and traders take time off for vacation, and the markets often having difficulty maintaining positive momentum.

In the past decade, all 11 market sectors typically saw declines through August and September. However, the weakest sectors of the market tended to be Energy (-8.7% drop on average), Telecom Services (-8.4% drop on average), and Financials (-7.6% drop on average). If this season continues the same historical trend, we are under-weight in all three of these sectors. So our portfolios should be prepared to win the fight!

The economic numbers, presidential election cycle, and any news of potential COVID-19 vaccines will set the national mood and thus the sentiment for the stock market over the next two months. As we enter the weaker months of August and September, our best defense is having a good offense. We have been talking about a flight to quality for the last few months, and we expect this trend to continue.

Irrespective of how the COVID-19 pandemic unfolds, whether we see the market dip into a more W-shaped economic recovery, and even regardless of who ultimately wins the presidential election in November, our team is committed to helping you fight the battle and reach your financial goals. We have the portfolios fine-tuned for the battles that are set to come our way.

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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