Black September … Fact or Fiction?

Black September … Fact or Fiction?
Ty J. Young Editorial

We have been seeing lots of headlines saying September is historically one of the worst months for stocks, but is that all talk? What’s really ahead for the market?

It’s NOT all talk, since there are some big moments in history tied to September stock market collapses:

1) 6 out of 10 of the biggest drops in market history have occurred in September and October
2) 8 out of 10 when you throw in August
3) September is the only month in the last 100 years with an average negative return of -0.8%
4) MIT study done on this a few years ago, and there is no concrete reason why this happens
5) But, from 9/11 to the Lehman collapse, we know these things do happen

October has been no better and has had some of the more famous stock market crashes:

1) Panic of 1907
2) Crash of 1929 – The Depression
3) Black Monday (1987)

So is it the date on the calendar? Is it Labor Day? Is it that we are getting close to Halloween? Right now, any correction in the month of September or October would have a more probable explanation, and that explanation is most likely found in what we have been charting for some time:

1) China
2) The Fed
3) Fundamentals

First, there is China: They have devalued their currency, lowered interest rates and banned short sellers. This massive market intervention has only led to further stock market declines, which has impacted us here in the US.

Then there is the Fed:
1) Will it or will it not raise rates in September?
2) Does failing to raise rates still trigger a sell-off… since it may signal to the market a weakening economy?
3) This is the dilemma of trading the Fed as opposed to trading economic fundamentals…

And lastly that leads us to the economic fundamentals:
1) I know we had revised 2nd quarter GDP growth of 3.7%
2) But you can’t have (A) bad monetary policy, (B) bad fiscal policy and (C) bad regulatory policy for 6 years and then assume you are living in a healthy economy.
3) No wage growth, job growth… like China and the Fed, the economic fundamentals are negative inputs for the economy.

There are other headwinds which are possible, such as in Europe (Will we see another Greek crisis?) and traditional geopolitics, such as Russian moves in Eastern Europe.

There are enough headwinds out there that investors should be looking for safety. It’s not a date on the calendar, it is macro data (China) which is negative. It is Fed interest rate policy which is at best neutral. And our limited economic growth over the last several years has not been based on the traditional fundamental growth measures that reflect a healthy economy. In this environment – combined with history – a bad September is certainly possible.

AND NOW THE GOOD NEWS!

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