Some investors might be satisfied with a 5% risk-free return. But those who pick the right S&P 500 stocks are doing much better than that.
All told, had you invested $10,000 in January and reinvested your money into the top-performing stock in the S&P 500 each month in 2023, including Arista Networks in August, you'd have $125,279 now, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
That's an impressive eight-month gain of 1,153%. It's quite a feat given the S&P 500 is up just 17.4% so far this year. The same $10,000 invested in the S&P 500 would be worth just $11,740 now. That's a gain of just $1,740. The S&P 500 slipped in August as some investors figured rising yields on bonds are good enough.
Did August Snap A Strong Second Half For The S&P 500?
Hindsight is 20-20. And, clearly, few if any investors could have picked the top stock in each of the past eight months, as it's not a repeatable strategy. But the staggering numbers are a reminder to investors that amazing gains can be found even in a market that's taking a breather.
Thirteen stocks in the S&P 500 rose 10% or more in the month. And of those, two rocketed 20% or more including Arista. Not bad for a month when the S&P 500 fell 1.8%, snapping the string of gains in the previous five months. Even the red-hot Nasdaq 100 skidded 1.5% during the month.
Seeing the S&P 500 struggle in August isn't much of a surprise, though. The month is historically the third-worst month of the year, says "The Stock Trader's Almanac." Stocks have gained a scant 0.1% on average in the month going back to 1950, the Almanac says.
But this August was worse than usual, unless you chose well.
Top S&P 500 Stock Of August: Arista Networks
An information-technology stock rallied in August. But it wasn't one of the "Magnificent Seven" stocks you might suspect. It was Arista Networks, which sells cloud-computing services to companies.
Arista shot up 25.9% during the month, making it August's very best stock in the S&P 500 — topping even other high-growth tech stocks. It's now up nearly 61% for the year.
Just two other tech stocks beside Arista joined the S&P 500's top-10 gainers in the month. But they didn't rise anywhere near as much as Arista in the month. Computer reseller CDW rose 12.9% and networker Akamai Technologies added 11.2%. And AI champion Nvidia? It's shares rose just 5.6% in August.
Health care is the other S&P 500 sector to watch in the month. Three of the top 10 S&P 500 stocks this month were in the health care sector. Just behind Arista as the best S&P 500 in August is neuroscience treatment leader Eli Lilly, up 21.9% in the month.
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Reading The S&P 500 This Year
Each month's twists and turns reveal just how the volatile S&P 500 is still worthwhile for investors.
The year kicked off with a bang. Not only did the S&P 500 jump 6.2% in January alone, some winners during the month soared even more. Warner Bros. Discovery (WBD) added more than 56% in just a single month.
And then came February with a pullback. Optimism that the Fed finally cooled inflation with its rate hikes is giving way to fear that more rate increases are to come. Three quarters of the stocks in the S&P 500 dropped in February. Catalent (CTLT), a health care company, was a rare standout with its 25.6% in the month.
And then in June a rally firmly took hold. The S&P 500 surged 6.5%, marking the index's best monthly gain all year. A huge surge in consumer spending, especially in the travel space, pushed the market in June. Carnival (CCL), a cruise line operator, saw its shares rally 67.7% in June — topping all other S&P 500 stocks.
The big question, though, was whether the rally could keep going in the second half. The jury is still out on that. Powered by a bounce in financial stocks like Zions Bancorporation, which rose 42% in July, the first half started strong. But then rising yields gave stocks more competition in August.
And now, there's the scary month of September to contend with. Historically, September is the worst month of the year. S&P 500 returns average -0.5% in September, the almanac says.
But just as with August, a tough market for most S&P 500 stocks doesn't mean it's bad for all of them.
How To Turn $10,000 Into $120,005 In 8 Months
| Month | Top S&P 500 stock | Symbol | Monthly gain | Sector | S&P 500 monthly change | Starting balance | Cumulative value of $10,000 investment in January reinvested in best stock each month |
|---|---|---|---|---|---|---|---|
| January | Warner Bros. Discovery | 56.3% | Communication Services | 6.2% | $10,000 | $15,630 | |
| February | Catalent | 25.6% | Health Care | -2.3% | $15,630 | $19,631 | |
| March | Intel | 28.7% | Information Technology | 2.0% | $19,631 | $25,265 | |
| April | Chipotle Mexican Grill | 21.0% | Consumer Discretionary | 1.5% | $25,265 | $30,571 | |
| May | Nvidia | 36.3% | Information Technology | 0.2% | $30,571 | $41,669 | |
| June | Carnival | 67.7% | Consumer Discretionary | 6.5% | $41,669 | $69,878 | |
| July | Zions Bancorporation | 42.4% | Financials | 3.1% | $69,878 | $99,506 | |
| August | Arista Networks | 25.9% | Information Technology | -1.8% | $99,506 | $125,279 |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
