Editor’s note: Chaikin Analytics founder Marc Chaikin expects a big second half of 2024…
Regular readers know that’s part of Marc’s broad election-year thesis for stocks this year. He believes the market will keep moving up as we get closer to decision day in November.
But that doesn’t mean we’re free from volatility…
You’ve probably heard about the so-called “June swoon.” In fact, Marc wrote an essay on this topic in the Chaikin PowerFeed around this time last year.
As we begin June this year, we want to revisit Marc’s thoughts. So we’re republishing his original essay with a few tweaks. And you’ll see that his thoughts are just as relevant today.
In short, it’s a reminder that volatility isn’t a death sentence for stocks…
It always tickles me to hear folks on the radio quote daily market numbers…
You’ll hear something like, “The Dow Jones Industrial Average closed up 37 points yesterday.” Or maybe they’ll say, “The S&P 500 Index is down 123 points today.”
I have to wonder…
What do everyday people do with this information? Do they know what it means relative to the specific index?
I don’t think many radio listeners hear “123 points,” check the current level of the S&P 500, and figure out what it means in percentage terms. But that type of context matters.
Perhaps even crazier, that’s the bare minimum amount of context needed. Most folks also don’t know what these daily market numbers mean on a broader basis…
Does a “down” day mean anything? What about several of them in a row?
I’ve come to realize my years as a “quant” have spoiled me. I’ve had access to a mountain of data for so long that I’m now awash in market context.
For me, a couple points up or down do mean something. That’s true even if they don’t matter to most folks.
I’ll show you what I mean today…
We’ll talk about what “down” days in June could mean for the market. And more importantly, we’ll cover what history tells us to expect if the end of this month falls flat…
Since 1995, the market has experienced a sell-off at the end of June after a positive May on 22 occasions. That’s out of a possible 28 years over that span.
In other words, about 80% of the time, the market experiences what a lot of observers call a “June swoon.” And in those 22 instances, the average sell-off from June 19 through June 27 is roughly 1%.
So if you hear about the market selling off this month, just know that…
It’s normal.
The real question is, “What happens next?”
Here’s when being awash in a mountain of market data comes in handy…
You probably haven’t heard of Wayne Whaley before. But he’s one of the countless quants and financial thinkers who I follow.
Whaley won the 2010 Charles H. Dow Award. That’s a recognition of excellence in the field of technical analysis.
To the point of today’s essay, Whaley recently crunched the numbers on the stock market’s stretch of so-called June swoons since 1995. What he found is worth paying attention to…
You see, after a June swoon, things start looking up.
Of the previous 22 times, the S&P 500 produced gains from June 27 to July 23 in 19 instances. That’s an 86% success rate.
The S&P 500 averaged a gain of more than 2.2% in those instances, too.
Remember, we’re talking about a broad market index. A 2%-plus move higher after a losing stretch is a big positive change.
Our takeaway is simple…
On their own, it’s hard to interpret the market’s day-to-day movements. Most regular folks simply don’t have the proper context to know what everything means.
But with a little historical data, we can see these numbers in their larger context…
For example, it’s incredibly common for the end of June to produce a market sell-off. And that could happen in the coming weeks.
That’s OK.
History tells us that a June swoon often leads to positive returns over the following month. So don’t let it scare you out of the markets right now.
Good investing,
Marc Chaikin
