June: Like watching corn grow

When it comes to seasonal tendencies June is not a sexy month. There are scores of articles, White Papers and cyclical research on the January effect, sell in May theories, December window dressing and the odd habit of market crashes in October, but June is left out. This is somewhat surprising in that June has historically been at the bottom of equity index performance. Since 1950, June has produced the second worst average performance (-0.32%) in the Dow Jones Industrial Average and the third worst performance (-0.03%) in the S&P 500 (see “Vital June statistics”). 

Perhaps the reason June doesn’t get the attention it deserves is that people tend to forget about the “go away” part of the adage of “sell in May and go away.” 

It is not so much that about specific fundamental reasons the market underperforms, just that there historically has been less market activity in the summer. It dates back to a simpler time when wealthy investors and brokers could take large chunks of time off in the summer. Since, for the most part, investor are prevented from selling equities short, less activity basically means less buying. 

And it could be why the Nasdaq Composite—which only dates back to 1971—performs better in June, averaging a return of 0.67%, ranked tied for eighth in monthly performance for the Nasdaq. 

While we could make the case that the fundamental factors behind the weaker summer performance of equities in June are waning, recently June has produced negative return, dropping in seven of the last 10 years in the three major indexes. And, depending on what happens in April and May, equity markets will be near historic highs this year, ripe for a correction.