While the guess would be logical, it would also be wrong. There's an old Wall Street adage: "Buy overcoats in the summer and straw hats in the winter," meaning investors usually anticipate seasonal trends and buy stocks accordingly.
So which groups sizzle in the summer? The table below summarizes the performances of the 10 sectors of the S&P 500 over the past 30 summers (the full months of June, July, and August). The first column shows the average number of summers that the component industry indexes have been measured by S&P, with 30 being the most. The frequency of outperformance shows the average percentage of the time measured that the industries beat the market. And the final column shows the average gain during this three-month period.
STEERING CLEAR. While investors often pin their hopes on a summer rally, June through August historically has been a fairly slow period for the market, with trading volume down. Many investors are on vacation, while others, mindful that September and October usually are the worst months for the market, steer clear of stocks.
So it's not surprising that two of the best-performing sectors during the past 30 summers were defensive ones, as they allow investors to put their assets in safe places during the slow time and in anticipation of market weakness. Nor is it surprising to see that the economically sensitive sectors were among the worst performers, since they're usually the hardest hit during market pullbacks.
The top performer on the list was the Health Care group. I asked Robert Gold, the head of S&P's health-care group, if any other major fundamental reasons account for the sector's tendency to advance in the summer. Gold says the only reason HMOs, hospitals, and medical-device companies may move when it's warm is because the U.S. government works on a fiscal year. Medicare rate settings go into effect each year on Oct. 1, so investors know by August whether projected government spending on health care augured well for such companies.
SURPRISING SECTOR. Also in the upper echelon of summer performers was Consumer Staples, which was No. 3. Richard Joy, who heads that analytical group for S&P, says the second half of the calendar year is typically best for food and beverage companies because of heavy consumer spending around the Halloween, Thanksgiving, and Christmas holidays. Joy also embraces the flight-to-safety explanation.
The real surprise of the list was Information Technology, which was the second-best performer. Thomas Smith, head of S&P's Information Technology sector group, says even though many foreign high-tech plants shut down in August, many U.S. companies gear up for a "back-to-school" surge in demand for PCs and application software, which also benefits semiconductor makers.
In addition, investors may have bought such shares because they expected even stronger consumer demand at Christmas. Corporate purchasing managers' habit of spending their budgeted allotments before yearend could also have made these stocks appealing.
It may be fair to say that during the summer, while vacationers slather on the SPF 45 to protect themselves from ultraviolet rays, investors are also playing it safe. Either way, it's all about not getting burned.
30 years of June-August performances: 1972-2001
No. of Observations
Freq. of Outperformance (%)
Average % Change
Stovall is chief sector strategist for Standard & Poor's