August, a quiet month for markets?

Prior to the 2008 financial crisis, August used to be considered a quiet month for markets. Against the backdrop of apparent calm, the ECB would seldom hold press conferences, and the Treasury would not hold bond auctions until after the summer holidays. However, in the wake of the financial crisis, the stock market landscape took a 180-degree turn.

Just over a year ago, Alberto Matellán, chief economist at MAPFRE Inversión, spoke about the falls seen in the main Spanish index — it accumulated a drop of 6% in less than a week — and stated that, at this time of the year, the lower liquidity in the markets “magnifies movements.” Back then, there was less talk of volatility than in recent months: with the pandemic behind us, it seemed that recovery and optimism in the markets would return; however, the geopolitical crisis has shifted the landscape dramatically and is now shaking up investment decisions.

The last twenty years tell us that markets are now performing worse in the month of August. Proof of this is the S&P500, whose average return in August has been -0.2 percent since 1950. The central question now is whether 2022 will see investors once again experience episodes similar to those of previous years. Ignacio Amo, fund selector at MAPFRE Gestión Patrimonial (MGP), acknowledges that, with “the inflationary situation and the effect on economies, increasingly reduced growth expectations in Europe, and an unflattering corporate results campaign in the US,” the markets face even more complicated weeks ahead, aggravated by the economic slowdown and the growing risk of recession.

The MGP expert explains that this stagnation on both sides of the Atlantic — coupled with the little movement and the illiquidity of the markets in August — is what can magnify “movements in stock markets following any type of data or news.” This is where management teams strive to maintain relatively stable portfolios.

The main question explored by experts is how investors should deal with times like these. In view of the possible surprises in equities this month, Ignacio del Amo stresses that “long-term markets generate positive returns.” The main ingredient for investment success, he says, is “respecting the time horizon of investments.”

The fund selector again points to the S&P500, “whose 10-year performance has generated returns in excess of 180%,” rising from around 1,500 to the current levels of 3,800. This August, he recommends “avoiding being carried away by major bouts of uncertainty and respecting the time horizon of investments.”