Many times I wrote the markets historically decline between 5% and 20% in the months heading into the midterms. It is also widely known September is historically the worst month for equities.
It is also widely known that sometime in mid-October the averages enter into seasonal strength lasting until mid-April. There is also strong precedence the averages bottom about 7-10 days before the mid-terms and the sectors that were lagging become the market leaders.
The first paragraph is or has materialized given the typical NASDAQ stock is down over 20% albeit the bifurcation is great between the indices.
Will the second paragraph come to fruition?
Earning season commences next week. Will profits again exceed expectations for the gazillionith quarter? The S & P 500 is trading around 16.5x trailing and 15x anticipated earnings, valuations that may be “full” but are far from “stretched” or “overvalued.”
The general economic landscape is positive albeit there are several strong headwinds including uncertainty about monetary policy and an ugly geopolitical environment. Optimism/confidence is low and cash levels high.
I think the odds are around 60% the current drubbing in the Russell 2000 will be viewed only as “noise” in four to five months because of the generally positive economic environment.
I think it is noteworthy that when the Federal Reserve begins tightening money supply, equities are higher three months later. The markets are volatile going into and immediately following the first change, but the first tightening move is typically viewed as a sign of strength that will positively impact earnings and hinder valuations.
This week the markets are faced with a plethora of data consisting of various employment, manufacturing and housing statistics. How will these statistics influence outlooks?
Commenting upon Friday’s market activity, equities staged a narrow based rally on dated data stating the economy expanded during the second quarter by the greatest amount since 2011. I rhetorically ask is the “buy on dip mentality” alive and kicking?
Last night the foreign markets were down. London was down 0.33%, Paris down 0.64% and Frankfurt down 0.58%. Japan was up 0.50% and Hang Sang down 1.90%.
The Dow should open considerably lower as the pro-democracy protests in Hong Kong is yet another geopolitical hot spot. The dollar also furthered strengthened to a four year high. The 10-year is up 8/32 to yield 2.51%.
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