Prepare for a market lull

Not that it was devoid of potentially market-moving news, from central bank meetings to claims about progress in the Middle East. Market impact, however, was hard to spot. High-yield spreads barely budged, the yield on 10-year US Treasuries did not change at all, and the MSCI World Index returned exactly 0.0% in local currency.

Not all markets were uneventful. Take commodities, which fell across the board, from oil to precious metals. Brent Blend was down by 21%, silver by 22%. And currencies – both Scandinavian currencies weakened, especially against the US dollar. But we’re talking about a very short chapter. And most of the larger movements are best understood as reversing previous spikes.

Instead, as financial markets are supposed to be forward-looking, let’s do exactly that. What is likely to happen in financial markets this summer?

No, I won’t be led into temptation – I’m not saying anything about prospective returns. I’ve noticed that comments about likely returns are not in short supply. But honestly, from one month to another, it’s little more than a coin toss.

What we do know, however, is that trading tends to ease during the summer months. That doesn’t tell us anything about the direction of the market, but I thought it might tell us something about risk. So I resorted, as I usually do, to the spreadsheet.

Lo and behold: July is indeed the calmest month. This holds true for both the US (S&P 500 from 1978) and Norway (from 1983). In July, volatility is about 20% below average. At the other end we find October, when volatility is roughly 75% higher than in July. And no, removing October 1987 does not change the order here.

I repeat: This does not tell you anything about the sign of market returns in October or July. It does indicate, however, that the magnitude of whatever happens in July is likely to be muted. You can reasonably expect a low absolute value, at least compared to the other 11 months of the year.

In other words: Prepare for vacation and let the markets take care of themselves. Or let your asset manager do it. And do have a wonderful summer!

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.