Bank of America: August May Kick Off the "Toughest Three Months" for US Stocks, Creating Opportunities for the US Dollar and Gold
A Bank of America report notes that historical data indicates August to October is the weakest period for US stocks, with the S&P 500's average return being nearly zero; meanwhile, defensive assets such as the US dollar, US Treasuries, and gold often perform strongly during this interval, and energy assets are also expected to buck the trend. Although the risk of a late-summer pullback is intensifying, this will pave the way for a strong rebound starting in November
As August begins, investors may need to keep one hand firmly on the steering wheel and the other ready with hedging tools at all times.
Paul Ciana, a technical analyst at Bank of America Securities, pointed out in his latest seasonal report that, based on decades of market data, August to October has historically been the weakest rolling three-month period for the S&P 500. Meanwhile, the US dollar, gold, and US Treasuries tend to outperform the broader market during the same window. This historical pattern validates Bank of America's continued defensive stance since late May.
Notably, Ciana also cautioned that seasonal weakness does not necessarily imply a long-term bearish outlook. Historically, late-summer pullbacks have often paved the way for subsequent strong rallies—between November and January, the S&P 500 has averaged a gain of 3.54%.
Historical Data Reveals: August to October Is the Weakest Season for US Stocks
Since 1928, August to October has been the worst-performing rolling three-month period for the S&P 500. According to the report's data, during this window, the index rose in only 55% of years, with an average return of nearly zero (-0.02%), and it experienced the deepest average drawdown among all rolling three-month periods, at 7.35%.
This historical pattern forms the seasonal basis for Bank of America's defensive strategy. Ciana emphasized that while seasonality is just one of many dimensions for investors to consider, historical evidence suggests that defensive positioning is often the more prudent choice before the market enters its traditionally strong period from November to January.
Not all stock indices face the same degree of seasonal pressure. Historical data shows that the Dow Jones Industrial Average demonstrates the strongest resilience in August, with a 62% probability of rising and an average gain of 0.86%. Overall, international stock markets have historically underperformed US markets in August.
US Dollar Strength May Persist, With the South African Rand Under Particular Pressure
The report points out that August has historically been a favorable window for the US dollar as well. Among developed market currencies, the US dollar has performed particularly well against the British pound and the Australian dollar—since 2000, the US dollar appreciated against the pound in 65% of Augusts, and the probability of appreciation against the Australian dollar was even higher at 69%.
This seasonal trend tends to be more pronounced in the second year of the US presidential election cycle. Among emerging market currencies, the South African rand has shown the weakest seasonal performance: since 2000, the US dollar appreciated against the rand in 73% of Augusts, with an average gain of 2.19%. Bank of America lists the USD/ZAR pair as one of the preferred seasonal trades currently, especially suitable for environments where market sentiment shifts toward risk aversion.
Bond Yields Tend to Decline, Gold Is the Clearest Defensive Asset in Late Summer
The report also found that August has historically favored lower US Treasury yields. The yield on the 30-year US Treasury bond tends to decline in August, a trend that is particularly evident in the second year of the presidential election cycle—about three-quarters of observed samples showed a decline in yields, with an average drop of 18 basis points. The downward trend in the Australian 10-year government bond yield is even more stable, falling in 73% of Augusts.
Declining yields usually correlate with a defensive investment environment, reflecting investors' tendency to turn to government bonds for relatively safe assets amid rising uncertainty.
Among major macro assets, gold is one of the biggest beneficiaries in the late summer phase. Since 1992, gold has risen in 61% of the August-to-October windows, with an average gain of 2.52%.
The report shows that gold has historically tended to strengthen simultaneously when the stock market weakens and Treasury yields fall, making it a preferred seasonal asset in the report for hedging against stock market volatility.
Energy Assets May Be an Exception, Poised to Buck the Trend
In an overall defensive seasonal landscape, energy is a noteworthy exception. The Bloomberg Energy Index has historically averaged a gain of 2.42% in August, performing even more strongly in the second year of the presidential election cycle. The report also noted that crude oil prices have historically tended to strengthen in the final third of August, potentially providing additional support for energy-related investments.
