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Stocks Often Pop in July: Time to Buy These 4 ETFs?

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In the first half of 2024, stocks climbed despite rising rates and geopolitical concerns, with the S&P 500 gaining 14.5% and the Nasdaq Composite rising by 18%. The Dow Jones climbed 3.8% while the Rusell 2000 inched up by only 1%.

Investors should note that the second quarter of the year, too, was upbeat for Wall Street despite April being a down month. Renewed Fed rate cut bets, ongoing artificial intelligence (AI) developments and strong corporate profits led to the rally.

And why not? Wall Street saw the key equity gauges hitting record highs in June. In fact, the S&P 500 topped the 5,500 level after hitting the 5,400 mark earlier in June. The tech-heavy Nasdaq Composite Index outperformed, rising 6%, while the S&P 500 and the Dow Jones gained 3.5% and 1.1%, respectively, last month.

Against this backdrop, let’s find out what the stock market seasonality holds for July.

Favorable July Seasonality for Stocks

Historically, July has been bullish for stocks, particularly for the Nasdaq, which has closed positively in 10 out of the past 11 years, according to Yahoo Finance. This bullishness, in most cases, is stretched for the full-year results as well.

There were 29 occurrences since 1928 when the S&P 500 had risen 10% or more by mid-year and typically ended the year with an average gain of 24%, Yahoo Finance reported. In the last 12 such instances since 1988, the second half of the year has reliably been positive.

Each year since 1928, the combined second and third quarters have seen average gains of 6.1% (with a median of 9.6%), being positive 76% of the time. July has historically seen an average return of 1.4% (2.3% median), but the frequency of positive returns has declined to 59% from June's 83%.

According to moneychimp.com, a consensus carried out from 1950 to 2023 has revealed that July ended up offering positive returns in 44 years and negative returns in 30 years, with an average return of negative 1.14%, which is the fourth highest in the calendar year.

Separately, BofA studied the first and last 10 trading days of each month going back to 1928 and found that the start of July has the highest average of any period (up 1.5% with positive results 69% of the time), Yahoo Finance says.

Top ETF Picks for July

Against this backdrop, below we highlight a few ETFs that might make your portfolio enriching in July.

Invesco QQQ (QQQ - Free Report)

The Invesco QQQ ETF tracks the technology-heavy Nasdaq-100 Index, which outperformed in the first half of 2024. The artificial intelligence (AI) craze, hopes of rate cuts and the rising share of the "Magnificent Seven" drove the Nasdaq Index. We expect the AI rally to continue in July. This is especially true given the cooling inflation and Fed rate cut hopes. On July 2, 2024, the benchmark U.S. treasury yield was 4.43%, down 5 bps from the day earlier. This decline in yields is favorable to growth sectors like technology (read: 5 Stocks That Powered Nasdaq ETF in the First Half).

Vanguard High Dividend Yield ETF (VYM - Free Report)

As the rates dived to start July, investors can take a look at the dividend ETFs. Dividend stocks normally outperform in a falling rate environment. Notably, the underlying FTSE High Dividend Yield Index of the ETF VYM consists of common stocks of companies that pay dividends that generally are higher than average. This ETF looks to be a great pick. After all, high-dividend ETFs provide investors with avenues to make up for capital losses, if that happens at all.

First Trust NASDAQ Clean Edge Green Energy ETF (QCLN - Free Report)

The increasing focus on the usage of alternative energy sources and diminishing global reliability on fossil fuels has resulted in a surge in investment in clean energy sources. Rapidly increasing electricity demand from data centers is proving to be a tailwind for the clean energy industry. The AI boom should thus continue to boost clean energy ETFs like QCLN (read: Bet on AI Ecosphere With These ETFs).

SPDR S&P Transportation ETF (XTN - Free Report)

The global economy has shown signs of improvement since the pandemic ebbed. Increased activities and higher demand for transportation are now understandable. Moreover, as summer heats up, travelers look all set to experience adventures and leisure travel. This Fourth of July, a record 70.9 million Americans are likely to hit the road, marking a 5% rise from last year. Hence, investors can bet on this Zacks Rank #2 (Buy) transportation ETF (read: ETFs to Tap Surging Summer Travel Demand).

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