​As Sam Sees It: 9 Stocks to Consider If the Market Drops in August/September

Sam Stovall  |

Each week, we tap the insight of Sam Stovall, Managing Director, U.S. Equity Strategist for S&P Global Market Intelligence, for his perspective on the current market.

EQ: The market seems to be getting a bit jittery recently with concerns that stocks may be topping here. In this week’s Sector Watch report, you detailed how August and September have historically experienced the highest likelihood of significant dips and even sell-offs. How vulnerable has the market been during these two months in the past?

Stovall: While August has historically been a bad month, September has been the worst month of all. Going back to World War II, the average August performance has been a decline, ranking 11th out of the 12 months. September has averaged an even deeper decline than August, ranking the worst of the 12. Even more so, while the 11 other months have risen more frequently than they have declined, September has actually declined more frequently than it has risen.

So the purpose of the article really was to warn investors that if history repeats itself, and there’s no guarantee it will, we can easily see some increased downward volatility because historically that’s what has happened.

EQ: Despite some of the growing uneasiness, it’s not a foregone conclusion, as you said, that we’ll see a meaningful dip here. Do bulls have any factors working in their favor to help them get through this historically perilous period in the market?

Stovall: One of the reasons I think stocks have done so well, even as earnings have been declining, is because there are very few alternative investments that look attractive. Bonds haven’t looked very attractive because of the continued threat that the Fed could be raising interest rates. Commodities (essentially, oil) have slipped back into a new bear market, and investors—especially those starving for income—are really thinking the only place to go is equities.

But I think some of the reasons that strategists believe the market is ripe for a decline is that we’ve advanced almost 20% since the February 11 low without any meaningful breather. In addition, more than 85% of the stocks on the S&P 500 traded above their 50-day moving average, which historically has been a short-term indicator that stocks are overbought.

So while we could see a bit of a digestion of some of these recent gains, we could easily escape a meaningful 5% decline should we end up seeing the second quarter earnings continue to come in better than expected, and maybe we even start to get some economic data that looks encouraging. Indeed, S&P expects Friday’s payroll report for July to show a 190,000 increase where Wall Street is looking for something along the lines of 170,000.

EQ: There’s no telling how deep a decline, if any, stocks may see over the next two months. Does the market need a catalyst to spark a sell-off or could a pullback or correction occur without a primary fundamental driver?

Stovall: We could see a decline simply because you have investors who want to take some profits. We might also see a rotational decline where the market itself may not go through a decline, but we end up seeing many of the industries or sectors within the market take a turn, experiencing a decline in price.

But while valuations do look a bit stretched right now with the S&P 500 trading at 17.5 times forward 12-month earnings versus the average forward P/E of 16.2, there’s no reason we have to experience a decline. We could end up correcting not in price but in time, which frequently has also been a successful way of going through a digestion of gains.

EQ: You also discussed in this week’s report how investors may be able to handle this time of uncertainty. Can you share some of your ideas?

Stovall: First off, if you are a nervous nelly like I am, then forewarned is forearmed. If you have been alerted that this is a traditionally challenging period for stocks, then you probably won’t be your portfolio’s worst enemy by being surprised by a market decline or selling out when you probably should simply be sitting on your hands. In addition, you might even want to take advantage of declining stock prices. If so, I listed nine stocks in my Monday report that have strong buy recommendations by S&P Global analysts, but at the same time, are down more than 30% from their 52-weeks highs.

So these are stocks that are down significantly in price over the last year, but also represent very attractive investment opportunities, according to our analysts.

For more from S&P Capital IQ, be sure to visit www.getmarketscope.com.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


Symbol Name Price Change % Volume
MOS Mosaic Company (The) 19.95 -0.08 -0.40 3,837,127 Trade
LGF Lions Gate Entertainment Corporation n/a n/a n/a 0 Trade
GILD Gilead Sciences Inc. 63.94 0.51 0.80 14,648,454 Trade
SKX Skechers U.S.A. Inc. 40.59 -0.67 -1.62 2,397,868 Trade
JBLU JetBlue Airways Corporation 21.07 1.28 6.44 15,987,138 Trade
MGA Magna International Inc. 53.81 0.57 1.07 435,990 Trade
HAR Harman International Industries Incorporated n/a n/a n/a 0 Trade



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