Historically, August has been a volatile month for the stock market.


Photo:

Mark Lennihan/Associated Press

This August has been remarkably calm for the stock market, but history suggests it may not last.

Tuesday and Wednesday featured the S&P 500’s smallest two-day swing of 2018 between intraday highs and lows, according to Dow Jones Market Data. Wednesday and Thursday featured the second-smallest swing. It’s been eight sessions since the index had a one-day move up or down of greater than 0.5%.

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That contrasts with what historically has been a volatile month for the stock market. Since 1950, August has had the second worst monthly performance behind September, according to

LPL Financial
.

Over the past two decades, the index has fallen 1% on average in August, giving it the worst monthly performance, as The Wall Street Journal’s Markets newsletter noted Friday.

Perhaps it isn’t surprising that volatility creeps up when trading volume is thin and traders are away from their desks for vacation. On Thursday, U.S. composite stock market volume was the lowest since mid-July, and the 15th smallest this year.

But another reason for the August effect is that some big market-moving events have happened during that time. In 2015, fears about China’s weakening currency spread, hammering the U.S. market. In 2011, S&P downgraded the U.S. credit rating. In 1998, the hedge fund Long-Term Capital Management blew up. In 1990, Iraq invaded Kuwait.

All told, when the market falls in August, it has averaged a loss of 4.5%, by far the worst average among the 12 months, according to LPL Financial.

For this August, the S&P 500 has edged up 1.3%. But there’s no shortage of potential threats that could upend the calm, from escalating trade disputes between the U.S. and China to growing risks for the tech giants that have underpinned the index’s rise. On Friday, a sharp drop in the Turkish lira showed the broader risks for emerging markets.

Of course, the market has had a strong three-month stretch, with the S&P 500 rising 5.8% over the period. The index sits less than 0.7% away from its record high, and there’s little to suggest an immediate reversal.

But as investors have found in recent years, August has a tendency to surprise.

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Write to Ben Eisen at ben.eisen@wsj.com

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