The summer lull...with a brief interlude

The phrase "Dog Days of Summer" applies very aptly to overall stock market performance during the summer months of June, July, and August.

But there is a silver lining for bulls...albeit a very brief one. Jay recently showed that it's about to trigger.

Since 1940, the S&P 500 has enjoyed a cumulative gain of 168% when held only during the months of June, July, and August. A glance at the equity curve of those months shows that the results seem okay, if a bit choppy.

When we put this in perspective versus the rest of the year, though, it doesn't look so hot. The chart below shows the cumulative return for an investor who held a long position in the S&P 500 every year ONLY during June, July, and August (red line) versus the return for all other months (black line). All of a sudden, summer month returns don't look so great, because we can barely even see the red line.

Now, here's the silver lining...

There is a 12-day stretch during the dog days of summer when stocks have consistently rallied. While every year is different and nothing is a sure thing, the last 3 days of June through the first 9 days of July have rallied 74% of the time since 1940. The win rates, average return, and risk vs. reward during this stretch far outweighs other summer stretches.

For the bulls, that's about the best they can ask for during a seasonal lull.