Stock Market in September – What’s Next?
Stocks performed poorly today, with the Dow Jones index down 47 points at 9,496 but off the lows of the day. There’s been a lot of talk about how September is generally a very poor month for the Stock Market, historically. I know that Anand wrote on his previous post that he feels stocks will take a dive of 5% to 10% soon. I don’t completely agree with him on that.
First, stocks have recovered very nicely from the March 2009 lows. Cost cutting has helped companies report better-than-expected earnings in Q2 and we’ll likely see that trend in Q3. I don’t think that the cost-cutting is done, so I believe that Q3 should be another quarter where results from companies in the S&P continue to surprise on the upside — not because of top-line growth, but because of cost control.
Also, there’s been some stabilization in the real estate market. I think that will translate into less charge offs and delinquencies in the coming quarters for many financial institutions. Financials have been the leaders in this recent market rally so it’s important that they continue to show fundamental improvements if this market rally is to continue.
I believe that the general stock market will trade sideways in September with certain sectors like Financials and Technology doing better than some other sectors like Energy. I really don’t feel like there’s any reason to panic because the fundamentals are improving. Despite what the “experts” are saying about the stock market getting ahead of the fundamentals, it’s just a matter of time before the fundamentals justify the valuations given to stocks. If the fundamentals continue to improve (as the economic data has recently suggest), even if the stock market has gotten ahead of itself, it won’t be long before the fundamentals catch up.
Unless you believe that the financial markets will melt down again like it did in March, there’s no real reason to panic. I don’t see a scenario like that happening and if you look 3-6 months ahead, we have the holidays coming up which I believe will be better for the retail sector than last year (given the improved corporate earnings, slightly improved real estate market, improvements in the financial stability of the banking industry, and a more optimistic outlook on the economy).
If stocks do take a dive in September, I would view this as a buying opportunity. With the GDP numbers expected to actually be positive next quarter, I just don’t see much of a reason to sell off when the economy appears to be stabilizing, if not improving.
