September is usually a very poor month for stocks. Investors are generally uptight because of this, but this year tensions are much higher after a brutal August that saw benchmarks fall around 3%, a figure which frankly does not do justice to the turmoil. The Dow actually averages a large decline in September historically, and the month has only had positives returns 36% of the time in the last 100 years. This statement from Barron’s says it all: “If you only owned the S&P 500 in September during every year, a $100 investment starting in 1969 would now be worth just $70.
FINSUM: September is usually bad (which does not really mean anything for this year in itself), but this year could be extra ugly because it may just be more of the same turmoil that has already been occurring.
It has been a rough road for equities this month. Benchmarks are down 5% and there has been frequent whip-sawing action based on data and news over the trade war. Despite the fears, JP Morgan is telling investors that it is time to buy. The bank’s equity strategists, led by Mislav Matejka think that stocks are going to turn the corner very soon. The bank thinks three elements may catalyze a move higher into the year end—restarted ECB easing, a bigger than expected Fed rate cut, and improving technical indicators on signs the market has bottomed out.
FINSUM: The Fed and the ECB could certainly help support stocks, but it hard to imagine benchmarks gaining much if we keep up the frenzy of trade war news.
What is the biggest risk to the equity market right now. Is it a recession? Is it a trade war? Neither, it is something much more mundane—earnings, at least according to John Hancock Investment Management. Analysts, and the market by extension, are expecting big earnings growth in 2020. And we mean big—the average analyst estimate for S&P 500 earnings growth is 10.5%. That seems like a huge number given that earnings growth in 2019 is set to be only 1%, and has been flat for a couple of quarters. It is made even more unrealistic by the direction of the economy. John Hancock says that defensive sectors like utilities, pipelines, and electricity grids should hold up best in the possibly forthcoming recession.
FINSUM: 10.5% earnings growth in 2020 sounds frankly laughable right now. That said, the market can adjust to these kind of expectations fairly fluidly, so a downturn in expectations may not wound equities all that much.
Markets took a nosedive yesterday. Last week was bad, but yesterday’s falls were so steep they amounted to about as much as all of last week. All fears over rates and the trade war came to a head when Trump labeled China a currency manipulator. The S&P 500 fell about 3%, meaning the total decline in the index since last week is around 6%. The Dow lost 760 points. The losses amounted to the worst single day drop since early 2018.
FINSUM: The “currency manipulator” claim is largely symbolic. While it certainly won’t help a deal get done, it is hard to see it having a tangible outcome. This seems like a lot of pent-up market anxiety manifesting itself.
The market is in the worst shape it has been for some time, maybe the worst condition of the year. The S&P 500 fell over 3% last week on the combined news of a less dovish Fed and a huge tariff increase on China. Where things go from here is very uncertain, but JP Morgan is arguing that you should buy the dip. The bank’s strategists summarize their view this way, saying “Our core view remains that one should use the prospective weakness as an opportunity to add further, similar to the May experience. We continue to believe that global equities will advance further before the next U.S. recession strikes. We think that the growth-policy trade-off is far better now than it was in 2018”.
FINSUM: The market, economy, and politics are at quite a confusing point right now. Either things will gel to send prices higher, or it will all come crashing down like it did last year. Anyone’s guess.