August 2023

A Look Back At July Stocks:

One month ago, we provided a list of the Top 20 stocks that had strong historical track records during the month of July. Here are how they performed in July 2023, in order of best to worst performance:

The percentages represent the returns from the June 30th close to the July 31st close. The average performance of all 20 stocks (+2.48%) fell just shy of the S&P 500 performance (+3.27%) and the NASDAQ performance (+3.86%). Our Top 20 Seasonality stocks trailed the benchmark indices mostly because of the two renewable energy stocks - Enphase Energy (ENPH) and SolarEdge Technologies (SEDG), which had very rough Julys.

Etsy, Inc. (ETSY, +20.14%) was our #1 stock for July and it performed like it. After downtrending for 4-5 months, ETSY began to surge in early July and now it's just one day away from its latest quarterly earnings surprise. ETSY was at a 52-week relative low vs. its specialized consumer services peers ($DJUSCS) as it ended the 2nd quarter, so I'm not exactly expecting a big report tomorrow:

Could ETSY's run be over? Well, I certainly would not feel comfortable holding it into its earnings report. The AD line has been going straight down since March. It didn't budge to the upside during that 20% July rally, which is worrisome. But anything can happen and usually does, especially when it comes to earnings reports.

S&P 500 August Performance

Here's a breakdown of the annualized performance of the S&P 500 (since 1950) during the month of August:

• August 1-3: +13.05%
• August 4-10: -13.23%
• August 11-17: +18.11%
• August 18-30: -5.05%

August is a not-so-great, boring kind of month for the S&P 500, and normally struggles once we get past the middle of the month and after most quarterly earnings reports have been released. The second half of Q3 (August 16th through September 30th) is the worst half quarter of the entire year. August, in the aggregate, has gained ground 40 of 73 years since 1950, which is below average. Only June (39) and September (32) have seen fewer up months than August. August's annualized return since 1950 is +0.16% and ranks 10th among all calendar months, boasting returns greater than only February (-0.38%) and September (-7.81%).

It's worth pointing out, however, that August is part of the four-consecutive-month period of the year - May, June, July, and August - where growth significantly outperforms value. Check out this RELATIVE seasonality chart since this secular bull market began in 2013:

The IWF (large cap growth) has a history of outperforming the IWD (large cap value) from May through August. If you add the average monthly returns at the bottom of these 4 months, you get total outperformance of 5.1 percentage points since this secular bull market began. If you add the other 8 months, you get total UNDERPERFORMANCE of 0.2 percentage points. Again, relative strength of growth vs. value LIVES in the period May through August. So while August isn't a bullish month, we do still tend to see growth outperform.

Sector Performance

Before we look at individual stocks, let's get an overview of how the various sectors and industries have performed during August (and September) over the past decade (during this secular bull market):

Sector Heat Map:

The numbers reflect how much a sector, on average, outperforms or underperforms the S&P 500 over the past 10 years. The dark green-shaded areas show significant outperformance (1.0 or greater). The light green-shaded areas show solid outperformance (from 0.5 to 1.0). The yellow-shaded areas show underperformance (-0.5 to -1.0). The red-shaded areas show significant underperformance (-1.0 or greater). Where there is no shading, there tends to be more neutral performance (-0.4 to 0.4).

Leadership in August has come from technology (XLK). Here's what the XLK looks like as we enter August:

The XLK has been trending higher throughout 2023 and it remains the best-performing sector of the year, albeit by a very slim margin over communication services (XLC). I was concerned last month when the XLK's PPO had reached 3, which historically has been a problem. That, combined with a negative divergence, may limit the upside of the XLK in the near-term. But it's very difficult to bet against a secular bull market advance as many bears find out on a nearly daily basis.

Industry Performance

Let's take a look at the industry heat map within technology to drill down to the best seasonal strength in August and September over the past decade among the various industry groups (relative to the S&P 500):

Technology (XLK):

The August historical strength in technology has been led by two key industries, computer hardware ($DJUSCR) and software ($DJUSSW). Throughout the past decade, Apple (AAPL) has performed best in July and August, its two best consecutive months of the calendar year:

This helps to explain the strong August performance of computer hardware.

Here are industry groups (within sectors other than technology) that tend to perform much better than the benchmark S&P 500 during August:

Consumer Discretionary (XLY):

• automobiles, recreational services, home improvement retailers, business training & employment agencies, apparel retailers, travel & tourism

Communication Services (XLC):

• none

Industrials (XLI):

• transportation services

Financials (XLF):

• reinsurance, mortgage finance

Health care (XLV):

• none

Consumer staples (XLP):

• food retailers & wholesalers

Real Estate (XLRE):

• none

Utilities (XLU):

• none

Energy (XLE):

• coal

Materials (XLB):

• aluminum

Stocks for August

We've selected our Top 20 seasonal stocks for August. Several names represent sectors and industry groups that have been discussed above. Others simply stand out in August based on their own historical track record.

The stocks this month are as follows:

A "Seasonality - August 2023" ChartList (annotated with 1 or 2 support levels to watch) has been created and will be available for viewing/download on our website on Wednesday. You must be a StockCharts.com Extra or Pro member to download our ChartLists. Basic members and non-StockCharts.com members can view the charts one at a time.

Happy trading!

Tom