🌩️ Is a summer storm coming?

Happy Monday, friends. Let’s start the holiday week off on a cautiously optimistic note.

Have a friend who needs an investing pep talk? Send them my way, we’re all about the pep talks here 😊

It’s eerily quiet out there on Wall Street.

In June, the S&P 500’s largest drop last month was a measly 0.41%, which made it the calmest month for the stock market in almost five years.

For some, the quiet has been enough of an excuse for you to shut your laptop and retreat to the beach for the summer (if that’s you, need a buddy?).

But for others, it’s been an ominous signal. Sure, it’s quiet, but is it too quiet? The ocean may feel calm, but the storm clouds are gathering and the news keeps warning about riptides.

Summer analogies aside – waiting for that inevitable drop in prices can wreak havoc on your psyche. We all know stocks go up and down, but what happens after they go up, up and up again?

The answer requires a little bit of context on my part and a lot of honesty on yours.

I’ll go first.

History tells us that it’s been an unusually calm stretch for the stock market. The S&P 500 hasn’t posted a big down day – a drop of 1% or more – since April.

If we make it through the summer without a big down day, it’ll be the first storm-free summer since 1979. Here’s a good chart from my colleague Matt C:

By the way, a 1% drop in the stock market is significant in Wall Street’s eyes. That’s the level when you start seeing red text, dramatic verbiage (“wow, stocks PLUNGED today!”) and furrowed brows even from seasoned market experts.

Summer can be an especially bumpy time for the market. Over the past 50 years, the S&P 500 has averaged seven 1% down days from June to August. It makes sense, too – stocks can be more susceptible to quick, sharp drops solely because there are fewer people out there to buy and sell. I mean, can you place a trade in one hand while balancing a pina colada in the other? I know I can’t.

The news doesn’t take a summer vacation either. Between now and September, we have two jobs reports, four inflation reports, a Fed decision, and an earnings season to navigate. Plus, election talk is heating up, and Congress needs to settle the federal budget by September 30.

At this point, you’re probably gathering your towel and umbrella. Storm’s a-brewin, let’s get out of here!

But it’s not that easy. It never is.

Stocks may go up and down, yet the ups and downs are far from predictable. 

Calm periods can last a while. In the past, we’ve waited more than five months – or about 100 trading days – for that elusive storm.

And when the storm comes, you often have to contend with a bunch of big up and down days that turn your stomach and frazzle your nerves.

This should make you more excited than nervous, though.

Now it’s your turn.

There’s always a chance we see lower prices over the next few months.

But while you can’t control the future, you can control how you react to it.

If we really are on the cusp of a big drop, do you really need to sell out and run for the hills (or the beach house)?

Because like summer storms, selloffs don’t last forever. In fact, about a third of the S&P 500’s 5% drops since 1950 have lasted less than a month.

If you have the foresight to realize that many selloffs aren’t devastating crashes, then every storm is a chance to dance in the rain. Invest your extra cash, or buy low with the hope of selling higher.

Maybe summer storms are a good thing.

Thanks for reading! Have a happy (storm-free) Fourth of July, folks 💥

Callie

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