Chris Kuflik - ScotiaMcLeod Montreal

This question has been on many investors’ minds these days. In addition, they have also been asking the following: Is it 2008 all over again? Is it too late to sell? What if anything should we be considering to purchase? Nothing good ever happens in the month of September, right?

The markets over the last week have resembled the tumultuous waters off the Atlantic Coast as hurricane Earl approaches this weekend. Many global markets rebounded sharply Wednesday. You should note that these sharp increases on the first trading day of the month have occurred 5 out of the 8 previous months this year. On Wednesday, number 6 occurred.  Is it a good predictor of what will be? I'll let the -6% loss on the US market through August stand in testament to its lack of staying power. So why did they bounce? The biggest reason at the open was news of better than expected growth in China and Australia. This helped to mitigate the worldwide economic slowdown theory. Then at 10:00 am that same day, we received news that the ISM manufacturing survey was well above estimates showing continued strength in this sector. It is interesting to note that the ISM contradicted most of the regional reports in August. So investors, at least for Wednesday, overlooked the weaker economic news and focused only on the news that was not as bad as expected. 

Have the bears gone into hibernation or are they just enjoying the last days of summer vacation?

If history is any guide, it is not a well-guarded secret that markets in the month of September are not a walk in the park. While there have been some years where the S&P 500 experienced a gain in the month of September, the weight of evidence suggests that September is generally a weak month for the stock market. As a matter of fact, according to data compiled by the Stock Trader's Almanac, the month of September is the worst month of the year for the S&P 500 (SPX), Dow Jones Industrial Average (DJIA), and the NASDAQ Composite (NASD). The average loss for the SPX has seen an average return of -0.7% for the month of September over the last 59 years (-0.9% during mid-term election years).  The best coming was in 1954 (+8.3%).  The worst coming was in 1974     (-11.9%) while 2002 was not too far behind at -11.0% for the month of September. So, for all intents and purposes, the month of September is generally the worst month of the year for stocks. However, if recent history is any guide, the SPX has experienced a gain in 4 out of the last 5 years. In the past five years, 2008 was the only year the SPX was down when it returned a -9.2%.  Despite generally weak returns in September, there are some areas where the market has done well during the month. This is to say that even in tumultuous markets, asset class and sector rotation plays a major role in the actual returns of your portfolios.

While I am not a gold bug, the sector has produced positive returns 78% of the time since 1987 in September. The average gain for gold during these months has been 5.11%.  In addition, defensive strategies with high stable dividend paying equities, such as those that we own that are both fundamentally and technically sound, have also worked well in these types of environments in the past.

The bottom line is that we have absolutely no way of knowing whether this September is going to be a positive month or a negative month; and the good part is that we don’t have to predict. I’ll leave that to ‘experts’ (said in jest) who pontificate in the financial media. We use indicators that are grounded in the irrefutable law of supply and demand that will guide our investment decisions. As it stands now, the vast majority of our risk indicators for the overall equity markets remain negative. Should they reverse, we will take action by deploying the cash in our portfolios.

Please feel free to share this article with someone you feel will benefit from its contents.

Wishing you and your family a safe and happy long weekend.

Chris Kuflik

Associate Director, Wealth Management

Wealth Advisor

514-287-2931

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