The stockmarket in August

Five years ago August was ranked the fifth strongest month in the year, but it has now slipped to eighth position. The average return in the month is 0.5%, while the probability of a positive return in August is 57%.

But there have been some nasty surprises in August - notably involving large falls of over 7% in 1998 and 2011. Last year, conversely, the market rose 1.5% in August.

Generally the volatility of stock returns is around the median for all months - certainly significantly below the high-volatility months of January, September and October.

In an average August the market tends to drift lower for the first couple of weeks and then increase for the final two weeks of the month. The final trading day of the month has historically been strong.

Domestically strong

Internationally, August is not a good month for equities: across 70 world equity markets, it has the second-lowest average monthly returns.

In domestic currency terms, August is the strongest month of the year for the FTSE 100 relative to the S&P 500, but after factoring in the (historically weak) GBP/USD exchange rate, much of that outperformance disappears.

The sectors that tend to be strong in August are food & drug retailers, gas, water & multi-utilities, healthcare equipment & services and household goods; the only predominantly weak sector is chemicals.

August is the busiest month for FTSE 100 and FTSE 250 interim results announcements: 40 FTSE 100 companies and 87 FTSE 250 companies announce their interims this month. So it's not a good month for analysts to take a holiday.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.