European shares closed at record highs on 11 August, defying the month's reputation as a graveyard for equity returns and raising questions about whether markets are prepared for shocks during the traditional summer lull.
The EURO STOXX 50 closed above 6,560 points, marking an all-time high and a roughly 13% gain since the start of the year. Germany's DAX moved above 26,450 for the first time, while France's CAC 40 finished around 8,740 points. All three indices are hovering near their peaks despite August's historical weakness.
The Myth of August Weakness
The data reveals August isn't consistently bad. Germany's DAX has averaged a loss of 1.03% in August since 1970, whilst September has averaged a loss of 1.64%. France's CAC 40 has averaged a loss of 1.22% in August since 1988, compared to 1.38% in September. The EURO STOXX 50's average August return is -1.42%, but the median is just -0.19%.
Most of the damage comes from five extraordinary episodes. In August 1998, 28 years ago, the EURO STOXX index fell 14.44% as Russia defaulted on domestic debt and devalued the rouble. In August 1990, 36 years ago, it dropped 13.82% after Iraq invaded Kuwait. August 2011, 15 years ago, brought a 13.79% fall as the eurozone debt crisis intensified around Italy and Spain. In August 1997, 29 years ago, the index lost 9.99% as the Asian financial crisis spread across the region. In August 2015, 11 years ago, it fell 9.19% when China devalued the yuan.
Strip out those five years and the EURO STOXX 50's average August return flips from -1.42% to +0.17%.
Liquidity Risks Remain
August can amplify shocks because Europe effectively goes on holiday. Trading desks thin out and fewer investors are actively setting prices. There are also fewer scheduled monetary-policy decisions. The European Central Bank's latest meeting was in July, with its next scheduled decision not due until September. The US Federal Reserve follows a similar summer gap.
Jackson Hole, the Federal Reserve's annual conference in Wyoming, can become a major market event later in August, especially when investors are looking for clues on interest rates. This year's gathering carries extra weight because it's Kevin Warsh's first Jackson Hole address as Fed chair.
Earnings and Inflation Outlook
Reuters reported that analysts had raised expectations for second-quarter earnings growth across the STOXX 600 to almost 21%, up from 12.5% in May. Eurozone inflation eased to 2.8% in June, down from 3.2% in May, though a fresh Middle East energy shock could complicate the path back to the European Central Bank's 2% target.
The historical record doesn't show that European stocks must fall in August. The more useful question is whether markets are prepared for an unexpected shock while liquidity is thin.
Why This Matters:
European equities are trading near record highs at a time when trading volumes are traditionally low and policy calendars are empty. The combination of thin liquidity and geopolitical uncertainty — particularly around Middle East energy supplies — creates conditions where shocks can be amplified rapidly. For investors and policymakers focused on economic stability, August's reputation isn't about averages but about tail risks. Europe's competitiveness depends on deep, liquid capital markets that can absorb volatility. When those markets empty out for summer holidays, the continent becomes more vulnerable to external shocks it can't control. The question isn't whether August is cursed, but whether European financial infrastructure is resilient enough to handle surprises when key decision-makers are away.