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Steep Road Ahead for Markets Following Poor August

Having failed to build on July’s strong gains, with one trading day left in August, the Dow, S&P and Nasdaq are poised for their 3rd month of losses in the last 4 months. For the month so far: the Dow is down 4.4%, S&P is down 4.8%, and the Nasdaq is down 6.0%.

This month’s declines have put the markets in a hole for the year (the Dow was up 0.4% year-to-date at the end of July). In all likelihood, the Dow will finish the month of August down YTD (it’s down 4.0% YTD right now) – and that doesn’t bode well for investors looking for gains in 2010.

Since 1929, when the Dow has finished August down YTD, it also ended the full year with a decline 81% of the time. It has only reversed its YTD losses after August (to finish the year with a gain) on 6 occasions (1934, 1942, 1968, 1970, 1998, 2004).

(Recall, when the index has been down year-to-date at the end of July, the Dow has ended the full year with a decline 75% of the time – so the rate at the end of August is only slightly higher from the end of July.)

Ending the Month with a Whimper?

Any traders hoping for a modest bounce to end the month must hope for a reversal of a strong recent trend. The Dow has been up on the last trading of a month just once this year (in February). The blue chip index has been down on the final trading day of the month for 5 months in a row, and more frustratingly, it has also been down on the month’s last trading day 10 of the last 12 months.

>> US Indices on Track for Worst August Since 2001

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