One might think of August as a quiet month for the markets given that everyone is on vacation, think again. As illustrated by the chart below, August is the second most volatile month for stock prices, beat out only by October -- and not by much. From 1896 to 2009 the standard deviation of August stock prices (DJIA) has averaged 2.03% of its mean for the month. In October the volatility registers 2.22%. The August to October period is the most volatile while the least volatility occurs from December to February.
August is a month in which many of the world's major political and economic events first hit the news. A random sampling -- Britain declares war on Germany (1914), Nazi/Soviet Pact signed, the Battle of Britain began, U.S. dropped the Atomic Bomb on Japan, Gulf of Tonkin Resolution authorizes U.S. troops in Vietnam, 1971 90-day wage/price freeze, Nixon resigned, 1990 Persian Gulf War began, Hurricane Katrina and the current global credit crisis begins as far as the equity markets are concerned (2007).
The moral of this story for August vacations -- keep your family close and your Blackberry closer.