The financial markets are set to wrap up the month with roughly a 3.5% gain, depending on where today’s action ends, which is historically on the positive end of returns for the month. The histogram below shows the annual percentage change for the month of August. Since 1930, there have been a total of 47 positive months versus 38 negative (55% win ratio) with an average return of 1.47%. However, if we strip out the 37.7% gain in 1932, the one outlier, the average monthly return falls to just 1.04%.
September’s prospects improve a bit from August with the overall win ratio improving to 58.3%. However, unlike August there is bigger propensity of market declines of between 5-10%.
With the Federal Reserve ending their support of the markets by October, and as discussed yesterday, corporate share buybacks on the decline; two of the biggest supports of asset prices over the last couple of years is fading. What does this mean for investors going forward? That is the subject of this Labor Day Edition of “5 Things To Ponder.”
1) A Classic Warning For Investors by Michael Mackenzie via Financial Times
“A look at the growing and already large divergence between the S&P 500 and the 10-year government note yield illustrates how the two big US markets are not only not cheap, but are also sending conflicting messages.
Here, equities and bonds can probably prosper in the near term until economic data conclusively settles the issue. Only then will the huge divergence between the S&P and 10-year yields snap shut with serious repercussions for some investors.”
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2) The Fed Has Become The Fundamentals by Jeffrey Cooper via MinyanVille
“A bull market will always find the silver lining, no matter how insignificant. Mirror image of human emotions and hysteria.” – Marc Eckelberry
“There is a notion out there that the bull market has a long way to go since there is no sign of elation, such as in the months leading up to the top in March 2000. Fear is driving the market, not greed. Equities are up out of lack of choice, not out of reason.
Ebullience has not been a hallmark of the advance at any point in the last 5.5 years. Does a grand top require a manic phase? The top floor can be reached by an escalator just as well as an elevator.”
