TLDR
- The S&P 500 has notched its most extended winning run since 2023, yet experts point to typically challenging summer months ahead.
- Historical data shows the S&P 500 drops an average of 2.8% between April and September during midterm election cycles, according to Dow Jones Market Data.
- Oil surging toward $110 per barrel combined with the 10-year Treasury reaching a 12-month peak of 4.61% creates additional headwinds.
- Semiconductor names including Sandisk, Micron, and AMD have tumbled 9% to 14% across five trading days amid macro concerns.
- According to Deutsche Bank, triggering a significant correction would require persistent oil shocks, contractionary economic figures, or hawkish Federal Reserve policy shifts.
The S&P 500 has completed an impressive eight-week advance — marking its strongest consecutive run since 2023. Friday saw all three primary indices close in positive territory, capping off weekly gains across the benchmark indexes.
Yet with June on the horizon, several market analysts are sounding notes of caution. Historical trends reveal that summer trading periods during midterm election cycles have proven challenging for equity markets.
Data from Dow Jones Market Data indicates the S&P 500 typically posts a 2.8% decline from late April through late September in years featuring midterm elections. This May, the benchmark has climbed 3.7% thus far.
Historical midterm summers have witnessed dramatic declines. The S&P 500 plunged over 25% in 1930, approached a 30% loss in 1974, and tumbled 24% in 2002 — all during midterm election years. Even when excluding these extreme cases, average performance during this timeframe remains virtually unchanged, showing a minuscule 0.006% advance.
The Cboe Volatility Index presently registers at 16.7%. Nomura’s Charlie McElligott has highlighted this level as surprisingly elevated given such a powerful market uptrend, indicating potential underlying risks.
Jeffrey Hirsch from the Stock Trader’s Almanac notes that midterm years typically redirect investor attention from corporate results toward political ambiguity. While he doesn’t anticipate a full bear market, Hirsch suggests the market might enter a “sideways choppy” phase throughout summer.
Jay Hatfield from Infrastructure Capital Advisors highlights a wider seasonal trend: equity markets typically strengthen during quarterly reporting periods and weaken afterward.
Oil Prices and Rising Yields Add to the Pressure
Meanwhile, international markets have experienced downward momentum during the previous two weeks stemming from escalating tensions involving Iran.
Brent crude oil has rallied close to $110 per barrel, fueled by supply constraints surrounding the Strait of Hormuz. This surge is elevating gasoline costs just before the Memorial Day holiday travel period.
The 10-year US Treasury yield has advanced to a new 12-month summit of 4.61%. Elevated yields enhance the appeal of fixed-income investments relative to equities while simultaneously increasing corporate financing expenses.
The pairing of persistent inflation readings and climbing yields has prompted sell-offs across technology and chip sectors. Sandisk and Micron have each declined approximately 14% during five consecutive sessions. AMD has retreated roughly 9% throughout the identical timeframe.
Deutsche Bank’s Henry Allen stated that a substantial market decline would necessitate at least one of three scenarios: prolonged oil price shocks, definitively contractionary economic indicators, or forceful interest rate increases from central banks. He observed that despite elevated crude prices, none of these circumstances have fully materialized.
Nevertheless, Hatfield identified a potential positive outcome. Should Democrats secure the House while Republicans maintain Senate control, the outcome would produce divided government. Historical evidence suggests political gridlock typically benefits markets by minimizing the probability of sweeping policy transformations.
“Gridlock is generally great for stocks,” Hatfield said.
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