Last Updated Aug 31, 2011 9:33 PM EDT
August brought the worst performance of the US stock market since May 2010, when the Wilshire 5000 lost about 8.0 percent. This was the worst August since August 1998, when stocks lost 15.6 percent. Still, it could have been much worse as stocks gained in six of the last seven trading days of the month.
For the year, US stocks are down only 2.6 percent. The more followed Dow Jones Industrial Average is now up slightly for the year, but this only includes 30 US stocks and uses a methodology that over weights stocks with high prices such as IBM, which is up 19.0 percent for the year. Stocks are relatively flat so far this year after having great returns in 2009 and 2010.
It's been a turbulent five weeks
The flatness of the stock market masks an emotional roller coaster ride of the past five weeks. On July 22, US stocks were within 2.8% of breaking the October 9, 2007 all time high, again measured by the total return of the Wilshire 5000.
During the next 11 trading days ending August 8th, stocks lost 17.9% of their value. Many investors had flash backs to 2008 and acted, or should I say reacted, in a similar manner by jettisoning stocks. Cries of "this time it's different" echoed the the halls. By the end of August, stocks recouped nearly half those losses.
Will September make five months of losses?
The media is hyping that September is typically the worst month for stocks. While there is nearly a 50 percent chance stocks will decline, staying consistent in asset allocation typically wins over the long run. Rebalancing in early and mid August looks pretty smart today. Personally, I feel better about buying stocks after a decline.
My advice, as always, is not to use any trend to time the market, whether it's betting on a fifth straight month of declines or a pattern of bad Septembers.