Interviewed on CNBC Wednesday, UBS’s Art Cashin, a great market historian, indicated that in years that end in “7”, market declines have often begun in August’s first three weeks. I explored that claim for the Dow Jones averages back to the Dow’s initiation in the 1880s. Hand-drawn daily graphs produced by the late Richard Russell of Dow Theory Letters fame were my data source, so percentages are approximate. Notwithstanding the lack of any logic for such a number-related pattern, the results are interesting. Make of them what you will.
|1887||12 stock average (10 railroads, 2 industrials) An approximate 5% decline through the second half of August was simply a continuation of a 17% decline from May to October.|
|1897||New 12 stock industrial average – A consistently strong August followed immediately by an 18% drop from early-September into November.|
|1907||A significant 11% early-August decline was merely another step down in the 45% “Panic of 1907” which extended from January into November.|
|1917||New 20 industrials, initiated in December 1914 following the multi-month market holiday – August’s 12% decline from the first week high covered the rest of the month and simply contributed to the 33% decline from January into mid-December.|
|1927||A slightly greater than 4% decline marked two weeks in the beginning of August, but the powerful 1920s rally resumed in mid-month on its way to the historic 1929 peak.|
|1937||Mid-August marked the beginning of the 1937 crash, which saw the index plunge by 40% into November. Markets bounced around for the next five years with a downward bias. Down 52% from the 1937 high, a great bull market began in 1942 that lasted into the 1960s with only relatively minor disruptions.|
|1947||Pretty consistent small declines in August comprised the bulk of a greater than 6% total decline that began in late-July and continued into September.|
|1957||Prices dropped sharply through most of August as part of the 19% decline that extended from mid-July into mid-October.|
|1967||A 3% to 4% August pullback interrupted the market’s rally to this year’s September high, followed by a 12% decline into 1968.|
|1977||Prices declined pretty consistently through August as a continuation of the 26% decline from the beginning of the year through February of 1978.|
|1987||The Dow Industrials peaked on August 25 and began the decline that culminated in the 508-point plunge on October 19. That 22.6% one-day decline is still by far the most destructive day in U.S. market history. The entire two-month decline from the August high came to 36%.|
|1997||An almost 8% decline covered most of the month of August as the initial stage of a 13% drop into late-October.|
|2007||From the second week in August, stocks dropped a sharp 6% in about a week, before rallying into an early-October peak. Over the next 17 months the Dow was crushed by 54%.|
Only one of the 13 profiled “7” years avoided at least a 3% decline at some point in the month. In 1897, prices marched steadily upward, but suffered an 18% decline shortly after the month ended.
Many Augusts simply continued existing declines – 1887, 1907, 1917, 1947 (mild), 1957, 1977.
1927’s 4% plus decline marked just a brief interruption of the Roaring ‘20s rally, which introduced the Crash of 1929 and the Great Depression. Similarly, in 1967 the relatively small 3% plus decline did not initiate a more significant retreat, but it was followed just a few weeks later by a 12% decline.
August of 1937 and 1987 marked the beginning of two of this country’s most destructive stock market crashes. And August 2007, while not initiating the 2007-2009 54% market collapse, issued a clear warning that stock prices were in danger. The ensuing decline took away 13 years of price progress.
None of this tells us what will happen in August 2017, but it does raise a caution flag.