Missing: The Annual August Stock Market Swoon
"The Stock Market is a device for transferring money from the impatient to the patient."
August is usually not that great for stock markets.
In fact, it’s like the land of summer swoons, an expected event which this year has been conspicuously absent.
Instead, we’ve had a string of five solid months of rises following the panic waterfall selling of March and early April.
Have we come too far too fast?
That’s a tough call to make in the near-term as there’s no precedent for the global shutdown. So, let's just say it sure would be helpful to get a pause, some setbacks, and a few new waves of fear rolling through the investor herd again.
If that happens it sets the stage for a solid run to the close of this historic and terribly sad year.
Bespoke tells us that if we only look at post-WW2 five-month gains of 25%+, the next month was positive 73.1% of the time for an average gain of 1.71%.
Over the following five months, the average gain has been very strong at +8.99% with positive returns 77% of the time.
I hold my hand up. I was wrong.
After 38 summers, I presumed this summer would be like all the others - sloppy, boring and ending with a swoon, usually in August.
Heck, we got the opposite and it’s frustrating.
What this sets up is a September that’s often one of the more negative months of the year, historically speaking.
(Though everyone always thinks that it’s October that’s bleak because "crash history" puts a black mark on that month in the calendar.)
And a sloppy Septembers usually leads to solid year-end finishes:
Of course, the picture above is just for the Dow Jones Index – which charts just 30 stocks - but even that index is changing in a very big way with the economic shift to the large, burgeoning and powerful Generation Y cohort and its influence and drive towards technology and automation.
The bottom line is that heading into September we might just consider this month as a headwind to the year’s end.
Throw in the politics and the media vitriol and you get the picture.
That said, I still argue that it would be a good thing to get a setback. Like any setback, it will not be fun, but it would be healthy for the long-term trend of the market.
US manufacturing is not feeling too much pain just now.
The data shows a strong comeback in the latest ISM Manufacturing information.
This sits nicely with the trend that we’ve just covered.
There’s a tremendous amount of inventory pipeline to refill. And many stores have aisles of empty shelves. That will work itself out over the next few quarters, ideally.
For now, we need to recognize we are in a "dead period."
The only news will be ugly news. And the next earnings season is eight weeks out. The only thing between now and then will be politically tinged. We just have to accept that. The calendar is working a little bit against us as we head into the last official week of summer.
If I had to guess, I'd say the risks for some chop come in after everyone gets back from America's Labor Day break.
Now, here’s an explanation of what we mean by the above “Baby Boomers to Generation Y shift” – Watch the short video here.
There are actually two short videos on the page link above. The password for the second video is “Upside2020”.
Folks, the new economy is forming right in front of us.
Don’t miss it for all the doom and gloom in the headlines