Friday, October 19 , 2018, 2:40 am | Fair 50º

 
 
 
 

Business

Craig Allen: Beware September, Historically the Worst Month for Stock Performance

After the worst month for stock performance since May 2012, stocks exited August facing what has historically been the worst month for stock performance: September. Adding to the challenge, we have multiple technical indicators lining up: predicting a correction, with stocks close to all-time highs. This combination of factors should, at the very least, give investors pause.

The Dow Jones Industrial Average finished down 1.3 percent last week and 4.5 percent for the month, while the Standard & Poor's 500 Index fell 1.8 percent for the week and 3.1 percent in August. The Nasdaq Composite Index closed down 1.9 percent for the week and 1 percent on the month. The S&P 500 closed at 1,633, down 77 points or 4.5 percent from the all-rime high set Aug. 2.

While the decline in stocks to date has been orderly, it is clear that investor concerns are beginning to take their toll. Technical indicators started to line up, forecasting a correction for stocks before the Syrian crisis began, and stocks also began to pull back prior to the latest reports of Syrian forces using poison gas. The Syrian conflict has only served to intensify investor concerns so far.

September has been the worst performing month for stocks, with overall performance, looking back to 1950, that is net-negative, meaning if we average all years from 1950 through 2012, we get a negative average performance number. Some notable recent years were:

» 1987 (just before the October ’87 crash): -2.42 percent

» 1990 (Iraq): -5.12 percent

» 2000 (tech bubble had burst): -5.35 percent

» 2001 (9/11): -8.17 percent

» 2002: -11 percent

» 2008 (financial markets crisis): -9.56 percent

» 2011: -7.19 percent

Surprisingly, October has a net-positive average performance from 1950 through 2012, although we suffered devastating crashing in October — the 1929 crash that led into the Great Depression, the 1987 crash (-21.76 percent for the month) that saw the S&P 500 drop more than 30 percent, and the 2008 crash (-16.79 percent) after the financial crisis started (after stocks lost almost 10 percent the month prior). If we look at the two-month period of September and October, it is clear to see that downside risk escalates dramatically at this time of year.

In a recent article — Technical Indicators Lining Up to Predict Major Market Correction— I discussed the multiple technical indicators that are predicting a correction for stocks. Since that time, we have had additional confirming indicators, including the S&P 500 violating its 100-day moving average (see the nearby chart).

We are now very close to violating the 150-day moving average as well. The S&P 500 also penetrated below the 1,640 level, tried to rally back above it last week, but failed, closing at 1,633 for the week. The 1,640 level now becomes a significant resistance level, which will be difficult for the index to surpass going forward.

Friday’s jobs report will likely be the Fed’s No. 1 data point of influence at their upcoming meeting, in which they could decide to begin the long-awaited and much-publicized tapering process — cutting back on their bond purchases from the current $85 billion each month to perhaps $65 billion (to start), with further tapering to come in the near term. With the monthly average of 192,000 jobs per month for 2013, and economists’ expectations averaging 165,000, something in the 150,000 to 200,000 new jobs range should provide the Fed with justification to start to taper. A Fed trigger-pull on tapering, and/or if we strike Syria, could serve as the catalyst for a sizable correction for stocks.

Despite the recent drop for stocks of 4.5 percent from the all-time high, valuations remain inflated, with the S&P 500 trading at roughly 19 times trailing earnings. While projected valuations look a little more realistic, they are based on analyst estimates, which are always optimistic.

Given the combination of expensive valuations, the multitude of technical indicators forecasting lower stock prices, the threat of Fed tapering and a possible strike on Syria, and the historical significance of the September/October time period, investors should take note and take actions to protect portfolios from possible downside exposure.

Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at .(JavaScript must be enabled to view this email address) or 805.898.1400. Click here to read previous columns or follow him on Twitter: @MPAMCraig. The opinions expressed are his own.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made using a credit card, Apple Pay or Google Pay, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Email
Select your monthly membership
Or choose an annual membership
×

Payment Information

Membership Subscription

You are enrolling in . Thank you for joining the Hawks Club.

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.
You may cancel your membership at any time by sending an email to .(JavaScript must be enabled to view this email address).

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.