Why investors don't like September
Brace yourselves, stock investors. A storm is coming. And it's not Hurricane Irma.
September is shaping up to be a doozy for investors. Analysts at LPL Financial note that since 1928 no other month of the year posts a worse track record, with the S&P 500 down 1 percent on average come Sept. 30.
Stocks are up in September only 43.8 percent of the time with no other month below the 50 percent threshold. Compare that record to December, the best month of the year amid "Santa Claus" rallies, up 73 percent of the time.
This September could beat the odds, of course, but history suggests at least an end to the lazy summertime doldrums investors have enjoyed. Stocks have traded listlessly since March and have been grinding sideways in a long consolidation range -- as seen best on the Russell 2000 small-cap index, propped up by just a few mega-cap technology names like Amazon, Apple and Facebook.
The post-election bull market promise of pro-growth initiatives from President Trump has given way to Washington gridlock and a growing realization the Federal Reserve is serious about continuing its policy of tightening the money supply. But steady if tepid GDP growth and an impressive energy-led rebound in corporate earnings growth has kept the bulls empowered, if not excited enough to dedicate significant new money to stocks.
As a result, a directionless theme has set in. Even the threat of a nuclear exchange with North Korea has largely been shrugged off.
But headwinds are approaching. The weeks to come will bring the U.S. government's debt ceiling deadline and further word of the Federal Reserve's plans to unwind trillions in bond holdings from the financial crisis era, . All of which combine to threaten a downside correction -- something that hasn't happened in more than a year.
The Fed will be in focus this week with a heavy schedule of speeches by officials presumably signaling the central bank's intentions. It starts with Federal Reserve Governor Lael Brainard, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Robert Steven Kaplan all speaking on Tuesday. This will be followed by Cleveland Fed President Loretta Mester, New York Fed President William Dudley, and Kansas City Fed President Esther George on Thursday.
Investor focus will fall most intensely on Brainard and Dudley, as they are scheduled to discuss economic outlooks and monetary policy. When Brainard last spoke on July 13, she said it would be appropriate "relatively soon to commence the gradual and predictable process of allowing the [Fed's $4.4 trillion] balance sheet to run off." Dudley told the Associated Press in a recent interview that he believes tighter labor market conditions will fuel higher inflation, dismissing recent price softness in areas outside of shelter costs.
Societe Generale analysts point to the compressed timeline Congress faces this month in an effort to address major legislation on the budget, hurricane relief, the debt ceiling and tax reforms.
Stocks are already feeling the pressure, with the Dow Jones industrial average dropping as much as 278 points in mid-day trading on Monday to put its mid-August lows back in play.
Technology companies led the slide as investors weighed the escalating tensions in the Korean peninsula a day after North Korea conducted its most powerful nuclear test to date, triggering U.S. warnings of a "massive military response." Bank stocks were also down sharply. Energy companies bucked the broader slide as the price of crude oil headed higher.
The Standard & Poor's 500 index dipped about 19 points, or nearly 0.8 percent, to 2,455, by the close at 4:00 p.m. Eastern time. The Dow finished down 234 points, or nearly 1.1 percent, to 21,753. The Nasdaq composite lost nearly 60 points, or 0.9 percent.
The Associated Press contributed to this report.