In one of the sharpest non-recession rallies in 20 years, the S&P 500 has surged as much as 32% off of the April 2025 lows, when tariff-induced panic nearly pushed it into bear market territory. Now trading just beneath the all-time highs reached on Tuesday, the benchmark U.S. equity index is well on pace for its 11th consecutive positive close in July–a month that has historically delivered positive returns on average.
Market seasonality, however, plays both ways as the average gains often witnessed in July tend to slow in August, before more pronounced weakness appears in September. For traders and investors who want to take advantage of historical market patterns, top online brokers like Charles Schwab and stock screeners like TradingView offer just the right tools.
Key Takeaways
- U.S. stocks are on pace to finish July in positive territory for the 11th year straight.
- The U.S. stock market has shrugged off tariff, fiscal, labor, and other concerns due to a mix of positive fundamental and technical factors.
- The seasonal tailwinds that U.S. stocks typically benefit from in July often turn into headwinds by August and September.
- Top-rated online brokers and stock screeners help monitor where markets stand in terms of their seasonal patterns.
What’s Fueling the Strong July Rally?
In what can be viewed as a positive development for the stock market, some of the top performing sectors in July have been economically-sensitive sectors like Technology, Energy, Industrials, and Consumer Discretionaries. These are the sectors which consist of companies that tend to perform well when economic conditions are favorable and the appetite for risk taking is high.
With uncertainty and instability related to tariffs, fiscal policy, labor market dynamics, and Chairman Jerome Powell’s future at the Federal Reserve still lingering, why has the benchmark U.S. stock index been resilient in recent weeks? The answer lies in a combination of fundamental and technical factors, including the following:
- Strong momentum in large stocks: Ongoing strength in popular momentum names like the Magnificent Seven has helped lift the S&P 500 due to heavy weightings in the index.
- Bullish analyst upgrades and upward earnings revisions: Wall Street analysts have been raising their S&P 500 targets, citing stronger earnings, tax benefits, and AI tailwinds.
- Improved macro sentiment alongside trade deal optimism: A thaw in U.S.–EU trade tensions and easing fears about tariffs has helped to ease some concerns.
- The “TACO Trade” appears alive and well: The growing realization that President Trump is willing to ease up on his often aggressive trade policies.
- Some investors are feeling pressured to buy stocks: With major equity indices like the S&P 500 and Nasdaq moving to new highs in July, investors who may have been underallocated to stocks are feeling pressured to join.
- Favorable seasonal tendencies: Since coming into existence in its current form in 1957, the S&P 500 has posted an average gain of 1.01% in July. In post-Presidential election years, July has actually been the strongest month over the same time period.
Beware the August-September Slowdown: What Seasonality Tells Us
Seasonality in the stock market is the idea that certain months—or even days—tend to deliver repeatable patterns in performance. The chart directly below, available on Charles Schwab’s thinkorswim trading platform, shows the S&P 500’s year-to-date performance (blue line) vs. the average performance since 1980 (gray line).
Source: Charles Schwab / thinkorswim
Also known as the seasonal chart, the average performance line shows investors how the index has performed on a month-by-month basis. The chart clearly highlights the slowdown that tends to start in early August.
Before investors make any portfolio decisions based on these seasonal tendencies, it is critical to remember that past performance is no guarantee of future returns. Macro events, changes in economic and monetary policy, and earnings surprises can often lessen or fully reverse the effects of seasonal trends.
How Investors Can Prepare for a Potential Seasonal Pullback
The imminent start of what tends to be a period of seasonal weakness in the U.S. stock market appears to coincide with what one expert market watcher calls a diminished risk vs. reward setup.
In an email exchange with Investopedia, Frank Cappellerri, Founder & President of independent research firm CappThesis, wrote, “The market’s short-term risk-reward has decreased in recent weeks for a number of reasons. First, the S&P 500 has formed a potential bearish rising wedge formation, which is nearing a potential trigger point. Additionally, sentiment has gotten stretched, and the daily trading ranges continue to tighten. This combination leaves the ultra calm summer trading backdrop vulnerable to a more turbulent phase, which aligns with the market’s historically sub-par seasonal period.”
Stock market corrections are a natural part of investing, but they can still rattle even seasoned investors. Luckily, the best online brokers and trading platforms offer numerous tools to help you manage any potential volatility.
Risk Assessment and Portfolio Review
Platforms like Fidelity and Charles Schwab provide:
- Risk analysis tools that evaluate your portfolio’s exposure to market downturns.
- Asset allocation breakdowns to ensure you’re diversified across stocks, bonds, and cash.
- Rebalancing recommendations based on your risk tolerance and time horizon.
Charting and Technical Indicators
Advanced trading platforms such as thinkorswim by Schwab or Interactive Brokers offer:
- Volatility and momentum indicators to spot overbought or oversold conditions.
- Historical pattern analysis to study how sectors performed in past corrections.
- Watchlists and price alerts to help monitor key support/resistance levels.
Educational Content and Simulators
The best online brokerage platforms also provide:
- Use paper trading or simulation accounts to practice correction scenarios without risking real capital.
- Access to webinars, videos, and market outlooks from in-house strategists to stay informed about market developments.
The Bottom Line
Using stock market seasonality is similar to how meteorologists use historical patterns to predict the weather. Just as certain months are more likely to bring snowstorms or heat waves, the stock market has its own recurring trends—like the “Santa Claus Rally” or the tendency for July strength to ease in August before transitioning to an even weaker September. These patterns don’t predict the future, but they can help investors frame expectations based on what the market has done in the past. Luckily, modern-day online brokers and stock screeners make it easy to keep track of seasonality trends, adding an extra data point to your toolset.