The Summertime Market Gauntlet Starts Now

By LUCAS DOWNEY, Editor, TradeSmith ALPHA SIGNALS

Markets go up… and they go down.

If you’ve only been investing for the last three months, you might take issue with that statement… because you’ve only lived through the up!

The S&P 500 has jumped a mind-numbing 30.9% from the April 7 lows. That equates to about three years of expected market gains in a few months.

But as much as we’d like to, we cannot get used to this.

Markets bob and weave… often in repeatable fashion. Accepting and learning to harness these moves is key.

That’s why our signal study today will focus on seasonal weakness beginning in late July (in fact, it’s starting right now) and lasting through September.

If history repeats in 2025, I want to arm you with a solid gameplan before any summer shenanigans do come around.

And you’ll be pleased to learn that inside of this weakness lies a silver lining.

I’ll unpack it today and offer up a great stock that just reported earnings to buy on any summertime pullback…

Seasonal Market Weakness Begins Now

Wall Street veterans know the pitfalls that arise in summer.

Most bank traders and money managers kick back and take vacations in August. They close up shop, causing liquidity to vanish.

This lack of participation in markets can cause extraordinary price moves in equities.

…and is part of the reason for the seasonal weakness that reappears like clockwork.

While 2024 had a robust showing for the S&P 500 in both August (+2.3%) and September (+2%), the two years prior were case in point of the nastiness that summer often brings.

In 2023, the broad index fell -1.8% in August and 4.9% in September.

Worse, in 2022 stocks fell -4.2% in August and plummeted -9.3% in September.

Here’s the 5-year chart showing these 2 ugly drawdowns:

While pullbacks are never fun to sit through, from the graph above we can clearly see that these periods ultimately prove to be great buying opportunities.

But let’s dive into history and learn about when this weakness actually begins.

Turns out, right about now is when the tide turns.

TradeSmith detects an abrupt end to bullish seasonality as soon as July 28. Keith is holding a free webinar about this market turning point today at 10 a.m. Eastern – and registrants can pull up charts like these in advance, on the event website (for just about any ticker you’d like). But here is what you’ll see for the S&P 500 based on the past 15 years of historical data:

On that timeframe, the seasonality is weak practically all the way to October, which are those next significant “green days” on the chart above.

I also did my own signal study of S&P 500 performance – going further back, to 1990 – and found that meaningful market weakness began on July 19 and, similarly, lasted through September.

The first 18 days of July performed well on average, with a gain of 0.9%.

Beginning July 19 and lasting through July 31, the S&P 500 fell -0.4%, followed by -0.6% performance in August and -0.8% performance in September.

But also note that bullish season kicks into high gear beginning in October – December:

So, don’t worry too much if we get some stock-market jitters in the coming weeks. It’s normal.

What’s more important is that you have a gameplan.

You want to build your buy list now so you’re ready to buy the summertime dip… and ride the rip.

Here’s a great company to consider…

Recommended Link

Elon to launch “biggest product of all time” as soon as August 19

Elon Musk says his upcoming innovation could be the “biggest product of all time”… And by the looks of things, it could turn out to be one of the biggest profit opportunities we’ve ever seen… So much so that NVIDIA’s CEO Jensen Huang says it could be the “next trillion-dollar industry”. But if you want a shot at astronomical returns… You have to make this simple move. Because it might be the best way to potentially profit from Elon’s upcoming launch if you’re not an insider.

American Express (AXP) is a Great Company to Play Summer Seasonality

When you size up stocks for your buy list during an expected drawdown, it’s helpful to focus on the business. You want to make sure anything you’re looking to buy is easy to understand and profitable.

American Express (AXP) is one of those businesses. It’s been servicing consumers and businesses for 175 years, best known today for credit cards that are staples in the wallets of affluent consumers everywhere.

But what excites me about this company isn’t its rich history or its simplicity. It’s the fundamental picture.

On Friday, AXP reported Q2 earnings with EPS of $4.08 on revenues of $17.9 billion. This beat EPS estimates of $3.89 on sales of $17.7 billion.

Even better, the company’s full-year guidance came in above estimates, with earnings of $15.25 per share at the mid-point and revenue growth of 9% at the mid-point.

This is the caliber of company you want to consider buying the dip on. And turns out, AXP dips and rips along the seasonal pattern of the market.

To prove this, let’s check on recent history…

2024 saw smooth sailing, with 2.2% gains in August and 4.8% gains in September.
But, like the market, shares fell hard in 2023, with an August drop of -6.4% and a -5.6% fall in September.
2022 was tough, with AXP shedding -1.3% in August and -11.2% in September.

I’ve circled these two drawdowns below:

Hopefully you spot the opportunity… AXP rallied later in the year in Q4 in both 2023 and 2024.

And to help you visualize this, let’s pull up the TradeSmith Seasonality tool for AXP, too.

This time I looked over the last 27 years, and beginning July 18 through Oct. 1 AXP has declined an average of 1.4%, with only half of the years showing a positive return.

Some of those years, in fact, were quite negative. Check it out:

Clearly you should expect headwinds in AXP over the coming months. But, as with the S&P 500, greener pastures await!

Using the same 27-year lookback, we can easily spot a seasonally bullish pattern later in the year.

Beginning Oct. 1 through Dec. 6, AXP has sported an average return of 7% with a positive hit rate of 76.9%.

That’s the silver lining:

And to do one final spotcheck, when you run AXP through the Quantum Edge system, we get a passing grade.

With an overall Quantum Score of 70.7, AXP sits right in the buy zone, plus scores well both fundamentally and technically…this seals the deal for me.

Let’s wrap up.

The summertime gauntlet is here…prepare for a little weakness ahead.

Just don’t get too bearish… because ballast comes around the corner beginning in October.

A great way to play these seasonal trends is by buying any dip in AXP in the coming months…and riding it higher into year-end.

That’s how you charge up your portfolio!

For more seasonal insights, Keith’s free version of our seasonality tool is available just a couple hours more. Then get your pencils out, so to speak, for his full, 10 a.m. briefing on what could be a very lucrative time of year if you play your cards right. Raise your hand for both at this link.

The Summertime Market Gauntlet Starts Now