What can we expect from stock markets in August?

Stock markets don’t take holidays. The Spanish equity markets will remain open throughout August, except on the 15th, which is a national holiday. But does that mean it's going to be a quiet month?

Historically, August is known to be a “dangerous” month because there’s less volume being traded, according to Alberto Matellán, chief economist at MAPFRE Inversión. "Lower trading volumes mean less liquidity, which in turn magnifies price movements. As there are fewer operators in the market, pricing swings are that much sharper," he said.

In any case, Matellán believes that only those investors who can’t deal with volatility should take some kind of precaution in portfolios. "In these cases, instead of taking precautions in August, what should be considered is whether their portfolios are balanced correctly. Personally, I wouldn’t make any change just because it’s a vacation month. Our strategy is grounded in more fundamental issues," he said.

August will see a number of central bank meetings, and all eyes will be on the U.S. Federal Reserve’s Jackson Hole Economic Policy Symposium, although there are more far-reaching events scheduled for September and October.

 

Political uncertainty

Political developments will be more present this year than in others, following Spain’s July 23 elections and the negotiations to form a new government. However, as the chief economist at MAPFRE Inversión explains, Spanish and European markets respond to global trends and not the particular events of a country, unless they are very pronounced.

"The important thing is to maintain institutional stability. If investors think that’s at risk, the first reactions you’ll see are delayed enterprise decisions on things like investment or hiring, but they aren’t reflected in the financial markets until they become effective. There are many precedents in Europe, such as Italy and Belgium," added Matellán.

 

Prospects for the second half of the year

The third quarter of the year may spook some investors, taking into account the current macroeconomic situation, which is marked by the economic slowdown, the persistence of inflation and rising interest rates.

According to the Economic and industry outlook 2023: third quarter perspectives report from MAPFRE Economics, the global economy will grow by 2.6 percent this year, down from the 2.8 percent forecast at the beginning of the year.

Spain, for its part, would register growth of 2.2% in 2023, up five tenths on the previous forecast, thanks to the moderation of energy costs, the tourism recovery of and the normalization of bottlenecks.

However, equity markets are holding up quite well in this environment, after 2022 delivered losses across almost all asset classes, and Matellán reasons that this good performance needn’t be erased in the last quarter.

"There are very significant risks, such as the possibility of a slowdown in growth in Europe, or an excess in rate hikes. But the data so far show a lot of resistance to difficulties, especially business earnings, which makes us relatively optimistic," he points out.