Scorching Heat and Thriving Economy
The S&P 500, a benchmark for the performance of the US stock market, has displayed a resilient performance in the recent months, despite global uncertainties and seasonal fluctuations.
October saw a significant jump in the S&P 500's median return, reaching 2.0%, marking a strong rebound from the meagre 0.2% return in August. The month of November followed suit, with a median return of 2.8%. July, traditionally a strong month for the S&P 500, recorded a solid 1.3% median return.
Historically, the S&P 500 generally performs well during the summer months, especially in July, compared to other months. Over the past 20 years (2005–2024), the best months for the S&P 500 include March, April, May, July, October, November, and December, with July consistently showing strong returns. The worst months typically are January, June, August, and September. Over the last 10 years, the summer months from March through July have been particularly strong, with August and September among the weaker months.
July 2025, for instance, saw the S&P 500 reach new all-time highs accompanied by a strong rally. This rally was partially attributed to easing tariff concerns and robust earnings reports. On the other hand, June and August tend to be weaker historically, though this can vary slightly depending on the decade analyzed.
The passage of the One Big Beautiful Bill Act (OBBBA) has introduced potential tailwinds and headwinds for the markets. Corporate profits are expected to be boosted first by the tax cuts from the OBBBA, while the effects could lead to upward pressure on inflation expectations. The Budget Lab at Yale forecasts a moderately growth-positive impact of the OBBBA in the short term, but anticipates GDP to be roughly two percentage points lower than the baseline by 2050.
The removal of political uncertainty around the OBBBA is a strong positive for markets. However, the EU, Canada, and Brazil are now facing tariff rates between 30 and 50%. By mid-July, Europe was already enduring its third heatwave of the year, and the UK recorded its warmest spring on record.
Despite these challenges, long-term investors should not fear, but embrace, short-term volatility. Consensus EPS growth expectations for Q2 earnings season remain muted, reflecting elevated macro uncertainty. The net fiscal impulse could exceed $100bn for the remainder of 2025, and $270bn in 2026.
In conclusion, the S&P 500's summer performance is generally positive, especially in July, and compares favourably to other months like August and September which are frequently weaker. This seasonal pattern aligns with broader market cycles driven by factors such as earnings seasons, economic data releases, and investor behaviours during summer vacations and fiscal quarters. Markets have been calm but have excelled, despite lingering risks and mounting question marks on multiple fronts.
- The strong performance of the S&P 500 during July 2025, as seen with its all-time highs and a robust rally, suggests a favorable environment for finance and investing, as well as business growth.
- The net fiscal impulse for the remainder of 2025 and 2026, expected to exceed $100bn and $270bn respectively, could contribute to a positive business environment, especially for those investing in sectors related to government spending.
