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Marc Cuniberti: October stock jitters

If asked what month is historically the worse for stocks, many investors would answer October.

There have been many horrible stock events that have occurred in October. The Bank Panic of 1907, the Stock Market Crash of 1929 and Black Monday 1987 all occurred during Halloween month. Because the 1929 and 1987 crashes were horrific in speed and scope and therefore have been covered extensively in the history books, it is not surprising that October is thought to manifest ghosts and goblins in the stock market.

The worst month for markets historically has been (sitting down?) September.



Stocks are down more often than up in September but the differences are slight. The S&P markets have scored a positive just 45% of the time since 1945. Interestingly enough, February is the only other month with an average negative performance.

The question that arises would be is there something about the economy earlier in the year, that causes the markets to pull back in the fall, or is there something going on in the investing public’s mind during this particular month?




Could it be something as silly as superstitious investors correlating an upcoming Halloween month to negative stock performance the month before, or is it simply nervous traders returning from summer vacation hitting more sell than buy buttons for whatever reason?

Cyclical reasons aside, since the difference between September and other months is so nominal, perhaps it’s just an odd coincidence. More importantly, in my opinion, although historical patterns should not be ignored entirely, the state of the economy, the political environment and other macro influences should take precedent when looking for successful stock prognostications.

At this time, as investors engage in September 2021, there are many reasons to be both bullish and bearish. Not much help there, I know, but this analyst holds the opinion that fear should be the slightly elevated emotion over elation. My portfolios positioning currently reflects this view.

The bullish reasons are many. The Fed is continually printing massive amounts of cash and handing it out willy-nilly to various banking entities of the world, and yes, they do hand out cash to foreign money conduits as well. Congress is also continuing its various stimulus programs and cash payments encompassing trillions of dollars for both infrastructure and individual enhancement. Six trillion and counting is a lot of money and adding that to the monetary payments going to the various money centers of the world makes many a reason for stocks to continue their ascent. The reopening of the economy, albeit stalled by the Delta variant, continues to see the consumer exhibit a relentless propensity to spend money, perhaps making up for lost time during the shut downs and shut ins. Interest rates are still in the dirt at historically low levels. That’s good for consumers and vendors alike.

Ignoring other considerations would make one think a rising market is a slam-dunk.

Not so fast there cowboys and cowgirls.

Stimulus could be running out of gas because of the “debt trap” (described as a situation in which a debt is difficult or impossible to repay because high interest payments prevent repayment of the principal).

Congress meanwhile is seeing increased resistance to more stimulus programs for the general populace. Afghanistan and POTUS concerns are dampening outlook, while the Delta variant is once again causing a consumer slowdown.

Non-time specific considerations includes the current “cost” of the S&P500 as measured by the 10-year P/E (price/earnings) ratio. It currently stands at 38.7. This is an astonishing 97% above the modern-era market average of 19.6. That puts the current P/E 2.5 standard deviations above the average.

Yikes.

Simply put, the market is very expensive right now. Caveat emptor.

As is standard operating procedure when it comes to markets, no one really knows which way the market will go.

We can say one thing for certain: we know the market will pull back at some point. The trick is knowing when. Since trying to know that is an exercise in futility, we can look back in history to hopefully catch a glimpse of the future.

We will get a trick or a treat in September?

We will definitely know in October.

Marc Cuniberti holds a B.A in Economics with honors from San Diego State University and is the host of Money Matters carried on 66 stations nationwide. California Insurance LIc# 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com

 


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