August begins the historically worst part of the year for stocks. Bank of America says get defensive

Published Mon, Aug 3 20203:18 PM EDT

Stocks could be in trouble moving forward as August kicks off a historically tough stretch for the market. Data compiled by Bank of America showed the S & P 500 has averaged a loss of 0.03% between August and October since 1928, making it the worst three-month period for the broader market index. This period also includes September, a month in which the S & P 500 averages a loss of 1%. Given this historically weak time period for the market, Bank of America's Stephen Suttmeier thinks this is a good time to "get more defensive." "August often marks the transition from summer rally to fall dip and can be a good time to get more defensive moving into the bearish August-October period for US equities," Suttmeier, a technical research strategist at the bank, wrote in a note. Suttmeier also highlighted other factors signaling investors should hedge their equity bets, including narrowing market breadth. He pointed out the New York Stock Exchange stock advance-decline line showed a bearish divergence in July by making lower highs as the S & P 500 kept climbing. This is similar to what happened in February, when the S & P 500 hit an all-time high and while the NYSE advance-decline line made lower highs. Another signal pointing to narrower market breadth is the declining number of S & P 500 stocks trading above their 10, 50 and 200-day moving averages. Of the 505 stocks in the index, just 47.9% are trading above their 10-day moving average, Suttmeier said. That's down from more than 80% in early July. Meanwhile, the number stocks trading above their respective 50-day moving averages has fallen from 85.4% of the index in June to 65.5%. Just over half of the S & P 500 remains above its 200-day average. "A smaller percentage of SPX stocks above 10-day, 50-day and 200-day moving averages entering the bearish August-October fall dip period when compared to moving into the bullish June-August summer rally period suggests narrowing breadth as the US equity market enters a more challenging time of the year," the strategist said.

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Stocks could be in trouble moving forward as August kicks off a historically tough stretch for the market.

Data compiled by Bank of America showed the S&P 500 has averaged a loss of 0.03% between August and October since 1928, making it the worst three-month period for the broader market index. This period also includes September, a month in which the S&P 500 averages a loss of 1%.

Given this historically weak time period for the market, Bank of America's Stephen Suttmeier thinks this is a good time to "get more defensive."