Can the ASX 200 bounce in July?

The ASX 200 took the staircase up but the elevator down, tumbling almost 4% in the last four sessions to a near three-month low.

Potential tax-loss selling has further compounded bearish factors such as markets rallying into overbought territory, the Fed reiterating a higher-for-longer scenario, more aggressive tightening from central banks (Bank of England, Norges Bank both delivered 50 bp hikes last week) and China’s shaky economic outlook.

However, the ASX 200’s historic performance suggests that there’s better times ahead. Or rather – Right around the corner.

Sell in May and go away

Before we dive into why July tends to be a positive month, let’s take a look at the previous month. Since 1992, there are four months of the year where the ASX 200 is negative. The below refers to average performance for the given month based on data from June 1992 to March 2023.

• March: -0.01%

• May: -0.58%

• June: -0.68%

• September -1.20%

ASX 200 seasonal performance based on data from June 1992 to March 2023

Taking a look at the seasonal chart below – The market tends to get very choppy between 30 April and 26 June.

ASX 200 seasonal chart (Source: Market Index)

In the past ten years (2012-2022) – The ASX 200 has only been positive in June 50% of the time and down -1.01% on average. Although the data has been heavily influenced by June 2022, where the Index fell 9.15%. The median for this data set is 0.03%.

Maybe we should call it ‘Buy in July’

Since 1992, July has on average been the third best performing month of the year.

• April: +3.42%

• December: +3.30%

• July: +2.19%

In the past ten years (2012-2022) – The ASX 200 has been positive in July 100% of the time and up an average 3.28%, with a median of 4.25%.

The ASX 200 recently undercut its June low of 7,090 and trading close to a fresh three-month low. From a technical perspective, the pickup in volatility and inability for the market to hold that June low is rather bearish. But when you look at the seasonality chart above – That’s always been the case (at least historically speaking).

ASX 200 6-month chart (Source: Market Index)

Will the seasonal low kick in this week and set us up for a strong July? Or maybe the ‘wall of worries’ is too steep for seasonality to matter.