Be Cautious Until October?

Moneyshow's Jim Jubak reviews the historic monthly patterns in the stocks market and shares several reasons why one should not be in a hurry to buy stocks until later in the year.

Investors tend to think of October as the worst month of the year.  It's the time of historically big crashes but October actually is not the worst month of the year.  In fact, October has been a bear killer.  It's killed 11 bear markets that have come to an end in October since the end of WWII, and April, contrary to that great investor, T.S. Eliot, is not the cruelest month either. 

The cruelest month is September.  This is the worst performing month historically of the year and it's going to be a very, very critical month for 2013.  I know we're only in July but I think it's not too early to look for it because I think there's kind of an impulse that investors have that you get through the summer and you say, okay, summer's over, I want to put money in and maybe what you really want to do is extend summer to say, well, summer includes September this year and I'll wait until October.  These are the problems I see with September this year.

First of all, the Fed has said that they might begin tapering off from their program of buying treasuries and mortgage-backed securities in September.  That would really be the start of it so you're going to get worried going into that.  You've got German elections in September.  There's no doubt that Angular Merkel is going to win but there is some down whether she's going to be able to put together a coalition government with any kind of power.  If she doesn't that bodes ill for the what do you call that, the Euro debt crisis that we don't want to talk about anymore.  You've got those two things going on.

The other big thing in the United States is you've got another big round of budget problems.  The US needs to pass some kind of budget.  The US Congress needs to pass some kind of budget for the end of the fiscal year, September 30.  We've probably got a debt ceiling battle coming up, enough to make the market nervous and so you've got all of that sitting out there for September at a time when the market is already back in July at an all-time high. 

You've got to say, is there going to be enough worry there to make people say, oh, I've got my gains for the year so I'm going to sell and I think that's really all we're looking at a decline because of profit taking so I would be very careful about when you buy into this market.  We're at an all-time high.  I think September is going to challenge that high in the sense of making it very challenging to maintain that so I think if you want to be really cautious, you need to keep your eye on these big macro events and thing about where in the calendar we are.