Bank of America: August may mark the start of the "most challenging three months" for US stocks, presenting opportunities for the US dollar and gold

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As we enter August, investors may need to keep one hand firmly on the steering wheel and the other ready with hedging tools at all times.

In his latest seasonal report, Bank of America Securities technical analyst Paul Ciana pointed out that based on decades of market data, August to October is historically the weakest rolling three-month period for the S&P 500 Index. Meanwhile, the US dollar, gold, and US Treasuries often outperform the broader market in this same window. This historical pattern validates Bank of America’s continued defensive stance since the end of May.

It is worth noting that Ciana also cautions that seasonal weakness does not necessarily mean a long-term bearish outlook. Historically, late-summer pullbacks often pave the way for stronger markets ahead—between November and the following January, the S&P 500’s average gain reaches 3.54%.

Historical Data Reveals: August to October Is the Weakest Season for US Stocks

Since 1928, August to October has been the worst rolling three-month window for the S&P 500 Index. According to the report, during this window, the index rose in only 55% of years, with an average return close to zero (negative 0.02%), and experienced the deepest average drawdown of any rolling three-month period at 7.35%.

This historic trend underpins Bank of America’s seasonal basis for its defensive strategy. Ciana emphasized that seasonality is just one of many factors for investors to consider, but historical evidence shows that before the market enters the traditionally strong November-to-January period, a defensive portfolio is often the more prudent choice.

Not all stock indices face the same degree of seasonal pressure. Historical data shows that the Dow Jones Industrial Average is most resilient in August, with a 62% probability of rising and an average gain of 0.86%. Overall, international stock markets tend to underperform US markets in August.

US Dollar Strength May Continue, South African Rand Particularly Under Pressure

The report points out that August is also a historically favorable window for the US dollar. Among developed market currencies, the dollar’s performance against the pound and the Australian dollar stands out—in August since 2000, the dollar has risen against the pound 65% of the time and against the Australian dollar an even higher 69% of the time.

Against the backdrop of the second year of the US presidential election cycle, this seasonal trend is often more pronounced. Among emerging market currencies, the South African rand is the weakest: Since 2000, the dollar has risen against the rand in 73% of Augusts, with an average gain of 2.19%. Bank of America lists USD/ZAR as one of the current preferred seasonal trades, especially suitable for risk-off market environments.

Bond Yields Tend to Fall, Gold Is the Clearest Defensive Asset in Late Summer

The report also finds that August has historically been favorable for lower US Treasury yields. The US 30-year bond yield tends to fall in August, especially in the second year of the presidential cycle—about three-quarters of cases show yields declining, with an average drop of 18 basis points. The downtrend in Australia’s 10-year government bond yield is even more consistent, falling in August 73% of the time.

Falling yields typically correlate with a defensive investment environment, reflecting investors’ tendency to seek the relative safety of government bonds when uncertainty rises.

Among major macro assets, gold is one of the most obvious beneficiaries in late summer. Since 1992, gold has risen in August–October 61% of the time, with an average gain of 2.52%.

The report shows that gold historically tends to strengthen when stocks weaken and Treasury yields fall, making it a top seasonal asset for hedging equity market volatility.

Energy Assets May Be an Exception, Poised to Strengthen Against the Trend

Amid the overall defensive seasonal pattern, energy is a notable exception. The Bloomberg Energy Index has historically averaged a 2.42% gain in August, and is even stronger in the second year of the presidential election cycle. The report also points out that oil prices tend to strengthen during the last third of August, possibly providing extra support for energy-related investments.

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