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Why the S&P 500 could be poised for a 5% drop -- or even more this summer

Dow Jones2021-07-22

Monday's market rout could serve as a good reminder that, yes, stocks can stumble when they trade near record territory.

While the downward pressure on stocks, this time, has been fleeting, that doesn't necessarily mean the end of volatility for markets this summer, said Ryan Detrick, chief market strategist at LPL Financial, in a Wednesday note.

"From less stocks participating, to weak seasonality, to a lack of bears, to typical choppiness during year two of a bull market, the summer months could be ripe for an eventual pullback (down 5-9%) or even a 10% correction," Detrick wrote.

Those were among the "many reasons" why after a more than 90% rally, he thinks the S&P 500 index "could finally be ready for a break," particularly when it comes to the often difficult months of August and September.

This chart shows average monthly returns for the S&P 500 in August and September, since 1950, have been largely negative, when looking over different stretches of time.

The study includes the modern S&P 500 index, launched in 1957, but also performance of the S&P 90, its predecessor index.

Historically, the chart also shows that April, July and November tend to be the best months for S&P 500 returns.

But despite a bruising Monday, the S&P 500 was up 0.7% on the week through Wednesday, while the Dow Jones Industrial Average was 0.3% higher for the same stretch, as investors snapped up beaten down shares in the energy $(XLE)$ and financial $(XLF)$ sectors.

Read: What junk bonds are signaling for this summer after Monday's sharp rout

"Incredibly, we haven't seen as much as a 5% pullback since October," Detrick said, while pointing out the average year since 1950 has recorded three separate S&P 500 retreats of 5% or more, "with not a single one happening yet in 2021."

"This doesn't mean a 5% correction is directly around the corner, but note that most stocks are actually already down as much as 10% off their recent highs, suggesting the internals of the market are a tad weak and risk is higher than normal."

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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Comment18

  • Hodl
    ·2021-07-22
    [Cool] 
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  • Winggg
    ·2021-07-22
    Yes!
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  • Chororo
    ·2021-07-22
    Reply
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    • Chororo
      2021-07-22
      Reply
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  • justjoined
    ·2021-07-22
    評語
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  • ASCNMN
    ·2021-07-22
    Ok
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  • Le66ad
    ·2021-07-22
    Buy
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    • ASCNMN
      ok
      2021-07-22
      Reply
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  • JoshuaLiew
    ·2021-07-22
    No
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  • WWTan
    ·2021-07-22
    Pls like
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    • SeC
      liked
      2021-07-22
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    • Le66ad
      ?
      2021-07-22
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    • 23b51218
      [Strong]
      2021-07-22
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  • Bitbit
    ·2021-07-22
    [Spurting] 
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  • Fynn_SG
    ·2021-07-22
    O
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  • Cool
    Reply
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  • IRIS94
    ·2021-07-22
    Comment
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  • KwLau
    ·2021-07-22
    Gotta get used to the  volatility in the stock market now.
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  • YJJJJ
    ·2021-07-22
    Another drop?
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    • aaalicia
      Okay
      2021-07-22
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    • pkycme
      F
      2021-07-22
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    • Torres87
      good
      2021-07-22
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  • Raymond杨
    ·2021-07-22
    Nicee
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  • 根本英俊Nickei
    ·2021-07-22
    Really
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  • Srav
    ·2021-07-22
    Wooow
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    • Cyou2
      Ok
      2021-07-22
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    • lynning31
      Wowww
      2021-07-22
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  • RaeAbel
    ·2021-07-22
    like. Thank q
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