July is historically a great month for U.S. stocks, this year might be different.
The stock market logged a gangbusters first half of the year. Can it last?
The S&P 500 index gained a whopping 14.5% to close the first six months of 2024. The Dow Jones Industrial Average rose 3.8% and the Nasdaq Composite climbed 18.1%.
Much of the S&P 500’s gains were concentrated in the Magnificent Seven big tech names, while other stocks lagged behind. Nvidia (NVDA), the leader of the pack, has pulled even further ahead. Shares of the chipmaker jumped 149% this year. Its valuation topped $3 trillion for the first time in June, when Nvidia was briefly the world’s largest public company.
Now, investors expect the Fed will cut rates up to three times in 2024, according to the CME FedWatch Tool, though the central bank has only penciled in one.
July is historically a great month for U.S. stocks.
Since 1928, July has emerged as the best month of the year, on average, in terms of stock-market performance. Over that time frame, the S&P 500 SPX has experienced a gain of 1.7% in July and finished the month higher more than 60% of the time, according to Dow Jones Market Data.
Over the past 21 years, nearly all of July’s gains have occurred in the first 13 trading days of the month.
Meanwhile, since 1950, July has tended to be “a dull month filled with choppy trading” during election years.
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Here's why this year might be different.
Stocks are still on an 'oversold uptrend'
Dave Lundgren, chief market strategist and portfolio manager at Little Harbor Advisors, said that normally, a stock-market divergence could lead to either a minor correction with a less than 10% decline or an actual bear market with stocks tumbling over 20%. But for now, he said, "this period is not doing any damage to the long-term stock trend," as some of the non-tech-related stocks are still "very very oversold."
Things also don't look so promising for small-cap stocks. The Russell 2000 has recorded an average return of 0.3% in the month of July, making it the fourth worst month of the year for that index since 1987, according to Dow Jones Market Data.
What Should U.S. Investors Do?
As we move into the second half of 2024, it is decision time for investors, and the choices made now will be crucial in navigating the evolving landscape of AI advancements, interest rate changes, and the U.S. election, the Swiss bank said.
“We recommend a balanced approach, diversified across fixed income, equities, and alternatives, to position for long-term financial goals while navigating near-term uncertainties.”
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