Each week, we tap the insight of Sam Stovall, Chief Equity Strategist for S&P Capital IQ, for his perspective on the current market.
EQ: The market has been very quiet this week, which is normal for August, but with nothing really to look forward to other than Jackson Hole, are investors holding their breath for Fed Chairman Ben Bernanke or have they just checked out for vacation?
Stovall: I have a feeling that most investors don’t really expect much to come out of this week’s statement by Fed Chairman Bernanke, especially since we have received better-than-expected S&P Case/Shiller Home Price data, an upward revision to second quarter GDP, and most recently, an improved tone from the Fed’s Beige Book. So I think most financial media will be saying that investors are holding their breath, when in fact, they’re more likely to be holding an ice cream cone in preparation of the long holiday.
EQ: September is historically the worst month for stocks. With several critical meetings taking place next month, do you anticipate this year being any different?
Stovall: Whether it’s a self-fulfilling prophecy or the fact that there are a series of meetings, court rulings, elections in Europe, as well as economic data and a FOMC meeting here in the States that could have negative implications on equity prices, we might find that September does not deviate from its more normal pattern. Actually, a subdued September would probably be a welcomed alternative.
EQ: What are some strategies that investors may want to consider as September approaches?
Stovall: The reason why I like to share stock market history with readers is not necessarily that they do something about it, but rather that they be forewarned so that they don’t do something about it. While September has been the worst month going back to 1900–in fact, since 1929, it has risen only 43 percent of the time–I think that investors should be aware of the September performance and use it as a virtual Valium. So don’t get nervous or upset if the market does decline in September because it normally does, and as a result, don’t let it cause you to prematurely alter your investment approach.
EQ: With how quiet this week, and August as a whole, has been there is a lot of speculation that volatility will be coming into the market in September. Does your advice extend to that with regards to investors keeping calm even if the market gets jittery?
Stovall: Yes. “Keep calm and carry on,” is an old British phrase from World War II that could hold true here as well. From a technical and historical perspective, our belief is that the stock market could continue to work its way higher through the end of the year. We typically do see a bit of softness in equity price returns in September and early October in election years, but then we tend to see the market rally into the election and beyond. As Charlie Brown once said, “I have a feeling that when my ship comes in, I’ll be at the airport.” So make sure you’re not at the airport or totally on the sidelines when the market finally does make its recovery.