Main Street investors with stocks in their retirement portfolios are about to see a nice bump in their balances: The Dow ended July at a record and closed in on a milestone of 22,000 after its best performance since February.
But investors need to stay alert in August, which is a tough month for U.S. stocks, history shows. In the past 20 years, for example, the Dow Jones industrial average has tumbled an average 1.4% during August, the worst performance of all 12 months, according to Bespoke Investment Group.
In July, the Dow rose nearly 550 points, or 2.6%, finishing at record highs in four straight sessions and topping its average returns for the month over the past 20, 50 and 100 years, Bespoke data show
The Dow closed at 21,891.12 Monday, making July the best month since February.
Powering the Dow higher were shares of Boeing. The maker of commercial airplanes and defense aircraft took flight and jumped 22.7% for the month, including a 14.2% rally since reporting second-quarter earnings on July 26 — which beat Wall Street estimates — and hiking its full-year sales forecast.
Stocks overall have gotten a lift from strong earnings across Corporate America. Also helping: rebounds in U.S. job growth and second-quarter economic expansion after a sluggish start to the year.
Companies in the Standard & Poor’s 500 stock index are collectively on track for profit growth of 10.8%, putting the index on pace for its first back-to-back quarters of 10%-plus earnings growth in six years.
Asked what the main driver of stocks were in July, Quincy Krosby, chief market strategist at Prudential Financial, said: “Earnings, earnings, earnings.”
The other major U.S. stock indexes also recorded gains. The S&P 500, which is made up of the nation’s biggest stocks and tracked by popular low-cost index funds and ETFs, rallied nearly 2%. The technology-packed Nasdaq composite gained 3.4%, pushing its market-leading gain for 2017 to nearly 18%.
Stocks, which also benefited from stronger growth around the globe, were able to shrug off obstacles, Krosby notes.
“Earnings have helped the market eclipse mounting concerns that the pro-growth, pro-business White House agenda is stalling amid political disarray,” she said. “Worries over escalating tensions with North Korea have so far eluded the market’s climb.”
Looking ahead, “unfortunately for investors we are about to enter the worst two-month period of the year for stocks,” Bespoke Investment Group noted in a commentary.
Stocks are at risk in August of being upended by volatile trading on days when most Wall Street pros are on vacation, as well as worsening geopolitical threats and events from places like North Korea and Russia, says Joe Quinlan, a market strategist at U.S. Trust.
“There are some risks in August,” Quinlan warns.