Bank of America’s August market forecast: The stock market has never been good, and the U.S. dollar and gold will “brace the east wind”
As the time progress bar is about to enter August, some analysts believe that investors in the financial market may be able to hold the steering wheel with one hand and put the other hand next to the hedging button. In his latest seasonal report, BofA Securities technical analyst Paul Ciana noted that historical market patterns point to a more "conservative" market over the next three months. Based on decades of market data, he said August to October have historically been the weakest three months for the S&P 500, while the U.S. dollar, gold and bonds tend to outperform during this period.
As the time progress bar is about to enter August, some analysts believe that investors in the financial market may be able to hold the steering wheel with one hand and put the other hand next to the hedging button. In his latest seasonal report, Securities technical analyst Paul Ciana noted that historical market patterns point to a more "conservative" market over the next three months. Based on decades of market data, he said that August to October have historically been the weakest three months for the S&P 500 Index, while the U.S. dollar, and bonds tend to outperform during this period. Ciana emphasized that seasonality is just one of many factors that investors need to consider, but historical evidence shows that August typically favors defensive strategies, greater exposure to the U.S. dollar, and Investments and a cautious approach to stocks are paying off until the market enters a historically strong November-January period. If history is a guide, August was not kind to the stock market. A Bank of America report shows that August to October was the worst three-month average performance period for the S&P 500 Index since 1928. During that period, the index was only up 55% of the time, had an almost flat average return of -0.02%, and experienced the largest average retracement of any rolling three-month period at 7.35%. Historical patterns reinforce the defensive stance Bank of America has taken since late May. However, Ciana reminded, Seasonal weakness doesn't necessarily mean bearish long-term. Historically, late-summer pullbacks tend to set the stage for one of the market's strongest periods, with the S&P 500 averaging 3.54% between November and January. Bank of America also noted that not all benchmark stock indexes experienced the same seasonal weakness. Judging from historical data, The Dow Jones Industrial Average was the most solid major stock index in August. The probability of an increase is as high as 62%, and the average increase is 0.86%. In addition, the performance of international stock markets in August was generally worse than that of the U.S. stock market. In addition, against the background of rising overall risk aversion, The energy industry is a notable exception. The Bloomberg Energy Index has historically risen an average of 2.42% in August, with even more significant gains in the second year of a president's term. The report also noted that crude oil prices tend to strengthen in the last third of August, which may provide additional support for energy-related investments. Dollar strength may continue The above-mentioned report also pointed out that the US dollar is usually in a historically more favorable environment in August. Among developed market currencies, the U.S. dollar typically performs particularly well against the British pound and the Australian dollar. Since 2000, the U.S. dollar has gained 65% of the time against the pound in August and 69% of the time against the Australian dollar. This seasonal trend will be even more pronounced at this stage in the second year of the U.S. presidential election cycle. Among emerging markets, the South African rand has had the weakest seasonal trends. USD/ZAR appreciated 73% of the time in August, with an average increase of 2.19%, making USD/ZAR one of the bank’s preferred seasonal trades, especially as the market shifts to a risk-off environment. The report also found that historically, August has tended to favor lower government bond yields. The U.S. 30-year Treasury yield tends to trend downward in August, especially in the second year of a president's term, falling in about three-quarters of the observation periods, with an average decline of 18 basis points. The downward trend in Australia's 10-year government bond yield is even more pronounced, falling 73% of the time in August. Falling yields typically signal a more conservative investment environment, as investors seek the relative safety of government bonds. Among major macro assets, gold was one of the clearest beneficiaries of the late summer period. Since 1992, gold has risen 61% of the time between August and October, with an average gain of 2.52%. Historically, when stocks weaken and Treasury yields fall, gold prices tend to strengthen, so Gold is one of the top seasonal assets recommended by the report as a hedge against the risk of stock market volatility.