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AUG. 06, 2021

In the Summertime

During summertime, we are all looking forward to a deserved vacation… traders included.
The summer is traditionally associated with vacation days, an easier pace in the office, and therefore lower trading activity and lower liquidity.

MarketAxess, a leading trading platform specialized in the fixed income market, publishes on the investor relation section of their website the historical trading volume data since 2018. When we look at the data we see a clear dip in volumes, particularly in the month of August: the average trading volume for all month excluding August is 20% higher than the average trading volume in August. The monthly average trading volume on the S&P 500 Index shows a similar story: the two months with the lowest activity are July and August.

The lower activity translates frequently in heightened volatility and can lead to lower returns. If we look at the performance of the S&P 500 Index over the last 50 years, the average price return in August has been 0.07%, the second lowest number after September (-0.73%). In July, on the other hand, the average return has been 0.72%.

Dispersion in returns has similarly been higher in summer months. Over the last 50 years, the S&P 500 has had a negative month in 39% of the cases. This number increases to 44% if we only look at the month of August and to 48% if we only look at the month of July.

Of course, many factors other than liquidity are influencing the market performance. For instance, in 2020 we had the best July-August performance in the last 50 years, with a cumulative return for the S&P 500 of 12.90%, as the market was bouncing back from the pandemic stock market crash.

This summer is set to be more muted, as compared to the last one, with July ending up 2.27% and August so far being volatile.
While enjoying the summer months, we remain active in the market and are using the current dips as entry points in our favourite names.

We thank you for the continued support.

The FAM team