Big Month Ahead for Tech Stocks?

Tech stocks are about to go on a major run. So says the vaunted Stock Trader’s Almanac.

According to the Almanac, August is THE best month for the tech-heavy Nasdaq Composite Index in presidential election years, gaining an average of 2.7%. Every fourth year, Nasdaq stocks thrive in August more than any other month.

The gains aren’t just reserved for tech stocks, either. August isn’t a bad month for the Dow Jones Industrial or the S&P 500 in election years. In fact, it’s the fourth-best month for those indexes.

Call it a statistical oddity that’s a product of little more than coincidence. But history can’t be completely ignored.

In 1984 – the year Ronald Reagan earned re-election – the Nasdaq gained 10.9% that August. In 2000 – the Year of the Hanging Chads and George W. Bush losing the popular vote but winning the election – the Nasdaq was up 11.7% in August.

What makes this particular statistical quirk so bizarre is that August is generally such a bad month for stocks – Nasdaq, tech or otherwise.

From 1988-2005, August was the worst month for Dow and S&P 500 stocks. Since 1971, August is the third-worst month for the Nasdaq.

But election years are somehow different. And this happens to be an election year.

It seems improbable that the Nasdaq will continue to rise next month after gaining 7.4% since June 1. For the year, the index is up 13.3% – nearly twice the gains of the Dow (6.9%) and one-third more than the S&P 500 (9.9%). 

If ever the Nasdaq was due for a bad election-year August, however, this is the year.

The European debt crisis keeps getting worse. U.S. unemployment stubbornly remains above 8%. The Fed seems reluctant to implement any stimulus measures.

Logically, stocks are due for a correction – Nasdaq stocks especially. Historically, we should expect big things in August.

Which will you go with – history or logic? The answer will likely determine how you invest next month.