8/12/2013 5:45 PM ET|
September is stocks' cruelest month
The market is due for a correction. But even if it gets one, stocks should resume rallying once the immediate crises are addressed.
Since 1971, September has been by far the worst month of the year for U.S. stocks. The average September return on the Standard & Poor's 500 Index ($INX) from 1971 through 2012 is a loss of 0.52%, according to the Stock Trader's Almanac.
Considering that only three other months show an average loss of any size over that period and that the second-worst loss is the 0.1% turned in by February, September sticks out like a very sore thumb. (October, feared as the month of crashes, shows an average return of 0.74% in that period. Not as good as December's 1.7% return, of course, but then December is the head of the pack.)
Now, whether or not you believe in historical stock market seasonal patterns, the September data is a useful warning flag. If the numbers simply draw your attention to September and the likely trends this year, they've served an important function.
Because, on projections of current news, September shapes up as a volatile month, with way more downside risk than upside potential. September sure looks like a month for taking less risk rather than more, for having more money on the sidelines rather than less and for thinking about protecting gains and principal rather than rolling the dice.
And that's especially the case because it is extremely likely that any fears that take stocks lower in September will have passed by October or November.
I think investors would like to have some cash on hand as we flip the calendar page to October just in case September lives up to its downside potential and creates a bargain or two.
The immediate threat
So why do I think September has such downside potential?
The Federal Reserve, for one, and the political parties occupying opposite ends of Pennsylvania Avenue in Washington, D.C.
The Federal Reserve's Open Market Committee meets on Sept. 18, and at the top of its agenda is the matter of when to begin reducing the central bank's program of buying $85 billion a month in Treasurys and mortgage-backed securities. And that's making the stock and bond markets nervous. The fear is that any reduction in the Fed's monthly purchase will cause long-term interest rates to move higher, suppressing U.S. growth.
The Fed hasn't done a particularly effective job at allaying those fears because, in my opinion, it hasn't wanted to. Letting market fears push interest rates gradually higher and asset prices gradually lower would make an actual transition to a slower rate of purchasing -- or to the eventual end of the entire program of buying -- easier for the Federal Reserve by taking some of the air out of asset prices over a longer period of time rather than all at once. The Fed's repeated assertions that its decision will be based on the economic data has served to keep the market on edge, and that may be exactly what the Fed wants.
What's the Fed's read of the economic data? It's not exactly crystal clear, but I think the Fed is saying the economy is strong enough that a reduction in purchases is likely, either in September or at the FOMC meeting in October.
In July, after noting that the economy had expanded at a modest pace and that labor market conditions were improving with strength in the housing market, the central bank noted that fiscal policy was acting as a drag on economic growth. But the Fed also said it expected economic growth to pick up in the second half of the year and pointed out that downside risks had diminished since the fall of 2012.
To me that sounds like a Federal Reserve moving toward tapering its purchases. And a spate of speeches from Federal Reserve officials last week that, on average, added up to a belief that the taper had to begin sooner rather than later carried weight with me because the verbiage came from both advocates of an early taper and those members of the Open Market Committee who had argued in the past for a later taper.
As long as the Fed is talking about a taper but hasn't yet begun to reduce its purchases, it locks investors in place.
The likelihood is that an initial reduction from $85 billion a month to, say, $70 billion won't have a huge effect on the prices of stocks and bonds, but no investor really knows. But what's the upside of getting out in front of any actual Federal Reserve announcement?
Replay of 'fiscal cliff' debacle?
The talk out of Washington points to a replay of last year's fiscal cliff debacle. A substantial number of Republicans in the Senate and, more decidedly, the House have said no budget or continuing resolution unless Democrats and the White House agree to defund or repeal President Barack Obama's signature health care program, the Affordable Care Act, aka Obamacare. The same Republicans have said they won't vote to raise the debt ceiling without big cuts to discretionary spending programs that already have been reduced by the automatic reductions in the sequester. Democrats in the Senate and the White House have shown no inclination to agree and indicate instead that they believe that Republicans will take the blame if the government actually does shut down.
Without a budget, or at least a continuing resolution, the government will run out of spending authority at the end of September. The treasury looks like it will be able to juggle accounts so that it won't exceed the debt ceiling until sometime in October.
Right now the two sides aren't even talking, so it looks as though we'll either go down to the wire before there is a deal or, more likely, go past the deadline and see a deal only once the government has actually had to shut down.
If you look back to the run-up to November/December/January fiscal cliff "crisis," the market wasn't amused. The S&P 500 fell 7.2% in the two months from Sept. 13 to Nov. 15. This time around, we've got two crises on the same timetable -- the budget and the debt ceiling -- and it's hard to imagine that the market wouldn't have a similar negative reaction.
VIDEO ON MSN MONEY
"The Obituary follows:
Obama: 127 million Romney: 143 million
The Democrat Party, with the licentious "leadership" of an incompetent fool, has achieved placing 47% of the population into government dependency, and has found ways to multiply their votes while subduing the votes of others. MHO!
Goodbye, USA. You were the greatest!
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.
Obama's own words...
What's wrong? The Government is spending millions building bike parking racks cause it thinks it has a right to tell Americans to ride more bikes cause its better for M. These government feel they have to run everything, even 10's of Billions for bullet trains. Here is the American problem. Largest government hooplay ever in the histry of the USA. All B.S.
The roughly matches the comments made early in the 2000's by Warren Buffett who said the 9% returns of the markets in the 1900's would be replaced by 7.5% returns in the 2000's.
So somewhere along the line, 1 year, 10 years, etc. one can expect the S&P 500 P/E average to drop, costing returns for current stock owners, or else the P/E will stay high - again costing 1.3% in returns for stock owners.
So any way you look at it, the AVERAGE market is likely to return less than average.
This is one of those cases where value investing with relatively low P/E stocks should pay off better in the long run.
Yep! It may go up, it may go down.
It might be a little, it might be a lot.
Astute commentary, and I agree.
Now back to pressing issues, on the first tee. FORE!
Yes V_L the puppet heads (as we know) will spin,spin,spin and for what? They never did like to discuss outside of the Hollywood news at this board. And(!) I just had a chuckle as to the old pres. throwing that Hollywood party and thanking for the years of keeping America entertained!
'Stocks Cruelest Month?'
Good morning folks!
Why this is some funny stuff hey! And to think the sheeple are asleep at the wheel.......
And what do we SEE?
Well we SEE those such as ice cold sangria (from the msn refugee board) along with fat cat and a few others over this way still spinning the lie for so called personal so called profit in I am better than you greed land.
Why there was a time limit as to just how long things could be contained and that some things should have never been mixed together as far as that periodic table of elements goes. Most that are older and a bit wiser learned these things all the way back in middle school as teenagers.
Yes unfortunate as mum is the word and the top inventors of the MAIN daily writings come straight up from good old hollywood. So pretty hard for the people to SEE and understand what is going on as the drift in sending most off to Fantasy Island has been quite a acomplishment over the years.
Now we are to listen to the 50/50 puppet heads with the half truth club of deciet for cash cows of destruction?
And they just now admit yet when we spoke of the ongoing those and the likes of sprewed that it's all over,will be cleaned up shortly,and we don't know what the heck we are talking about. Well of course they would and for the outline as presented. After all,can't have those TBTF and BIG BANKS buying up their own with clickity-click from nothing called instant DEBT surpassing TRILLIONS and Quadrillion.
Yes we spoke of the TRUTH but few had time to pay attention and many that did mocked and ridiculed.
Idea! Sure! How about moving those that have right alongside the soon to be no more as we watch and the NEWS slowly comes about in Short Time.
TooT! TooT! Right on Schedule as we have been saying.
And can't enter links or the board don't accept? That is something.
Aug. 9,2013 - AP: ‘Time bomb’ in leaking Fukushima trenches — If Tepco removes extremely contaminated water as planned, it will only make more flow in since reactor buildings connect to trenches
Aug. 12,2013 - Over 15 quadrillion becquerels of radioactive substances suspected in trench that Tepco now admits is leaking into groundwater at Fukushima
Aug. 12,2013 - NHK Special Report on Fukushima: “We are still in an emergency… Not much time left… We can’t afford to wait” — Asahi: Fear of contaminated water overflowing from well that’s nearby trench leaking 3 billion Bq/liter into ground (VIDEO)
Aug. 12,2013 - Radiation Expert: Enormous amount of contamination flowing from Fukushima will probably imperil entire Pacific Ocean — Threatens other countries, food chain — Absolutely can reach U.S. and Canadian shores (VIDEO)
Aug. 13,2013 - TV: They are turning ground into quicksand at Fukushima plant — Engineers warn reactor units may topple (VIDEO)
Aug. 13,2013 - MSN: Nuclear experts call for testing U.S. West Coast waters and Pacific seafood for Fukushima contamination — “I definitely recommend FD
July 3,2013 - RT NEWS / Why the media is not reporting the truth on Fukushima?
TooT! TooT! As according to Elliot Wave we are at the bottom and need a new wave for the future. Then again we have spoke more than once as to mimicking and that of the k-wave.
ZEEBART that is a GREAT summary.
The puppet pumpers are hard at work! Nothing changes yet,
excerpt - Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.
sources / zerohedge & washingtonsblog
Yes those 50/50 spin pumpers are having to spew overtime to keep up with the mess of it all.
Good morning folks!
Catching the latest spin job? Why the spin is back to back from a little better than a week ago concentrating on the same sales pitch,
Aug. 14,2013 -
excerpt: The Swiss franc slid to the weakest in a month against the euro after a report showed the 17-nation region pulled out of recession last quarter,
That's some FUNNY stuff as,
July 16,2013 - Chart of the Day: Unemployment in Europe Is Catastrophically High and Still Getting Worse
and that is not to mention back here in town,
July 5,2013 -
excerpt: • Full-Time Employment Plunged by 240,000 in June
• Economic Issues Accounted for 75% of Gain in Part-Time Employment
• Number of Short-Term Discouraged Workers Increased by 247,000
• June Unemployment: 7.6% (U.3), 14.3% (U.6), 23.4% (ShadowStats)
• Payroll Gains Were Warped Heavily by Inconsistent Seasonal Factors
Msn Refugee Board 2 / The Decoy409 POST
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[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 added just over a point, holding its weekly gain at 1.0% while the Nasdaq lost 0.4%.
The major averages began the day on an upbeat note, but relinquished their opening gains during the first 90 minutes of action. The early sentiment was boosted by a better-than-expected nonfarm payrolls report for February (175K versus Briefing.com consensus 163K), but a closer look into the report suggested that ... More
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