Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude market...
Ready for a Pause?
09/16/2009 1:00 pm EST
Sam Stovall, chief investment strategist of Standard & Poor’s, goes through the evidence for weak markets in September and wonders whether this time will be different.
The Standard & Poor’s 500’s price advance continues to confound many investors. The index rose 3.4% during August and [over] 50% since the March 9th bear-market bottom.
While this kind of performance is atypical in August during average years—since 1929, the S&P 500’s price change in August ranked in the bottom half of all months—it has been relatively common following bear market bottoms.
What’s more, nine of ten sectors and 103 (77%) of the industries in the S&P 500 rose in August (27 of them gained more than 10% during the month), pointing to the encouraging breadth of this advance.
However, many investors are wondering if September will live up to its reputation as the month in which the S&P 500 posts its worst price performance and frequency of decline.
In September, it lost 1.3% on average since 1929 versus an average monthly advance of 0.54%. [But] during the 14 Septembers immediately following the end of bear markets since 1932, instead of posting the average 1.3% decline, the S&P 500 gained a median 2.0%. What’s more, the frequency of declines—at 36% following the end of bear markets—was substantially better than the average 56% for all years.
Unlike August performances following bear market bottoms, however, which saw the S&P 500 rise in 12 of 14 observations, the market’s performance in Septembers following the end of bear markets was less consistent—it posted five declines ranging from 1.2% to 4.8%.
As a result, September’s track record leaves room for disappointment. So, while the average percentage change and frequency of advance results are more encouraging for the S&P 500 during Septembers following bear market bottoms, it is a worthy reminder that history is only a guide.
S&P’s Investment Policy Committee believes the equity markets are due for a period of consolidation. Mark Arbeter, S&P’s chief technical strategist, believes the 500 could decline to the 940-960 level before resuming its advance and establishing a new recovery high.
Also, S&P Economics is looking for US gross domestic product (GDP) to trace out more of a lazy U expansion, rather than a V pattern, over the coming quarters.
Finally, valuations appear a bit steep to us. The S&P 500 is trading at 19x 2009 estimated operating results with five of the ten sectors sporting P/Es of 20x or higher. Financials are the most expensive at 86x 2009 estimates, while materials ranks second at 35x 2009 estimates. We don’t know whether concerns over the upcoming third-quarter earnings reporting season will trigger this anticipated digestion of gains, or if further nervousness emanating from the Chinese stock market over the prospects of a slower-than-expected growth in GDP will cause US equities to trim some of their recent advances, but September is as good a month as any in which to suffer a setback, in our view.Subscribe to The Outlook Online Edition here…
Related Articles on MARKETS
As of October 17, 2018, recreational marijuana use will be legal in Canada. The question now is whet...
When it comes to new technology, nothing’s quite as cutting edge as driverless cars, or autono...
Marathon Oil (MRO) has been divesting many of its international operations over the past three years...