From Baltimore - So what does this summer have in store for investors? That's the question I pondered as I returned to work on Tuesday after the long weekend that marked the unofficial start of summer. Naturally, I turned to one of my favorite sources - the 2021 edition of the Stock Trader's Almanac - for answers. That's because equity markets often follow seasonal trading patterns. And while there are many aberrations and exceptions to these patterns, it's still useful to be aware of them. And what does the Almanac have to say about the market's historical performance in the June-to-August period? Well, there have been stock market rallies in every season over the last half-century. However, the Almanac says, "The summer rally in most years is the weakest rally of all four seasons." It continues, "The market rallies with more gusto in the winter, spring and fall than in the summer." These rallies are merely the market's performance from the lowest close early in the season to the highest close late in the season. The average summer rally in the Dow Jones Industrial Average since 1964 has been 9.4%. The average fall rally has been 11%. Spring rallies have beaten that at 11.8%, and winter has bested all other seasons with an average rally of 12.9%. If you add up the gains from all those rallies over 56 years, you will see that stocks have done much better in winter, spring and fall than they have in summer. So should we write off another underperforming summer market and focus on the beach, backyard cookouts and similar summery pursuits instead? Nope. Not this year. This summer is different - and it will almost certainly be an outlier in historical seasonal patterns. Almost Unprecedented Consider that growth in the third quarter was running at an average annualized rate of about 2.5% for several years before the pandemic. This year, by contrast, Goldman Sachs forecasts third quarter growth will be three times that rate, or 7.5%. The Conference Board, a business research group, sees growth of 6.8%. Other forecasts are in the same range. There are three primary factors underlying these soaring growth forecasts... U.S. vaccines bringing about the end of the pandemic Pent-up consumer demand from a year-plus in lockdown Some $5 trillion in fiscal stimulus sloshing around the economy.
But some market analysts think we're seriously underestimating the impact of the pandemic. Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management, wrote an interesting article that was published by Bloomberg on Monday. In it, he made a convincing case that the impact of COVID-19 will be similar to that of World War II. Like that previous global cataclysm, this one will create a "massive societal reset" in terms of employment, housing, infrastructure, wages and financial markets, Ritholtz writes. Certainly, the pandemic has altered the way we work and live, and its impact on the economy and markets has already been stunning. But what about going forward? Well, I looked back at how the stock market performed just as World War II was coming to a close in the summer of 1945. From July 1945 to May 1946, the Dow rallied 27%. Take a look... Of course, it's not clear what will mark the "end" of the pandemic. It certainly won't be when every last American is vaccinated (that's not going to happen). And the coronavirus may never completely disappear, as experts say it's likely to linger for years (though possibly as just a mild annoyance). So any pandemic end date we set will be somewhat arbitrary. But for me, at least, Memorial Day weekend was an inflection point. I was at several gatherings where there wasn't a mask in sight, and everyone I spoke with talked about having been vaccinated. Fist and elbow bumps morphed into hugs and handshakes. And I finally reconnected with friends I hadn't seen in person in 15 months. I'm aware, of course, that this isn't everyone's experience, but it seems we're well on our way. Still, the onset of summer and the rapidly fading pandemic have the potential to drive economic growth and market indexes to heights we haven't experienced in decades. I, for one, plan to participate in this summer rally. Enjoy your weekend, Matt | 
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