Research & Advice

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September’s stock market

Next week, Wall Street’s big boys return to their offices. Campaigning for mid-term elections moves to the front burner, and tariff threats between the U.S. and China will likely escalate. Welcome to one of the worst months of the year for stocks.

It is true that both September and October tend to be negative months for the averages. Since 1945, the S&P 500 Index has, on average, lost 1%. In addition, it is a mid-term election year where Septembers are almost always rocky months for the market.

One could say that investors face an entire Fall season of potential risks. Besides those I have already listed above, there will be the implementation of the new Iranian sanctions to contend with. And don’t forget the recent free fall in so many emerging market currencies because of a stronger dollar and rising interest rates. We also have another budget deadline for Congress coming up. Last, but not least, are some events in Europe that bear watching.

The Italian budget, which is due at the end of September, could be contentious, since the budget promised to the voters may not be acceptable to the European Union. That could trigger another crisis of confidence like, but more serious, than, the recent troubles in Turkey. Brexit is another on-going concern, as is the outcome of our potential tariff talks with the European Union on autos.

All the above should maintain, or even elevate, that “wall of worry” that we have been living with since January. The good news: despite these concerns, the S&P 500 Index, along with most other averages, have reached record highs in the last week. The S&P is now up 9% for the year and NASDAQ is even higher.

Given these obstacles, readers should not be surprised that a growing chorus of market pundits are warning of a 5-7% decline in stocks “soon.” Okay, that’s probably a fair guess, given the gains we’ve had, but so what. Do you really want to time the market here for a normal, and shallow pullback?

Statistically, while September and most of October are rocky months, the historical data says that whatever losses one incurs in the next two months, will be more than made up for by the end of the year. Are you good enough to guess the top, sell, and then get back in for a measly 5%? If you are, please manage my money.

Another thing with this “danger ahead” scenario is the number of people that are predicting this will happen at any moment. In the space of one week, my electrician, a dentist, two cab drivers and a librarian have all told me (and are convinced) that not only is the economy on its last legs, but the stock market was teetering on the edge of a precipice.

When I asked what led them to believe that this decline was eminent, they answered with conviction.

“They are all saying it.”

I never did get them to explain exactly who “they” were. The answers ranged from “those guys on the TV,” to “my book club members,” or “a neighbor who is in the business.” As a contrarian, I’ve heard these kinds of concerns in the past. It usually means that when the pack is leaning one way, you should be looking the other way. I say stay invested, look beyond a month or two, and prosper by the end of the year.

A reminder, there will be no columns over the next two weeks while my wife and I are in Norway on vacation.

Posted in A Few Dollars More, At the Market