July is The Best Month for S&P 500 in Post-Election Year

Options Newsman joined discussion · Jun 30 02:37

Jinta HONG, CFA

July has always been a month to watch in the stock market, particularly in post-election years.

Historically, it has been a standout period for the S&P 500, often delivering strong returns and offering investors a unique opportunity to capitalize on market trends. The S&P 500 exhibits a clear seasonal pattern, with July standing out as the strongest summer month—delivering positive returns in every historical period analyzed, from its +1.5% average since 1950 to a robust +3.5% over the past 10 years.

July is The Best Month for S&P 500 in Post-Election Year

Over the past two decades, July has frequently emerged as the top-performing month for the S&P 500. In post-election years, this effect is even more pronounced. On average, July has delivered a +2.2% gain in the first year of the presidential cycle, making it the best month of the year in those terms. Since 1950, the index has closed in green nearly 70% of the time in July, including 8 of the last 9 years.

Why is this the case? One reason could be the market's reaction to political stability. The aftermath of an election often brings clarity and direction, which can boost investor confidence. Additionally, July is when many companies start reporting their second-quarter earnings, providing insights into corporate health and performance. This reporting period can catalyze market movements, as positive earnings surprises tend to push stock prices higher.

Options Trading Idea

The implied volatility of $S&P 500 Index (.SPX.US)$ currently stands at 15.78%, ranking at the 29th percentile. This suggests that buying options are relatively inexpensive at this time.

If you anticipate a strong rally in July, you can long out-of-the-money call options. This approach allows you to capitalize on potential upward movements in the index while maintaining a low-cost exposure.

If you expect market volatility to increase, you might also explore a long straddle strategy. This involves buying both call and put options at the same strike price and expiration date, allowing you to benefit from significant price movements in either direction.

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Disclaimer: Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Opening new options positions close to or on their expiration date comes with substantial risk of losses for reasons that include potential volatility of the underlying security and limited time to expiration. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including i potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.

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