Not that we are predicting a bear market.
But is it true, as some are claiming, that it would be rare for a bear market to begin this late in the year after reaching a new high in August.
In fact, of the 25 bear markets since 1900, five of them began in September. And another 10 of them began in October, November, December, or January. That is, a total of 15 out of 25 began after August. In 1987, the market topped out in August, but even that was with less than a week left in the month, most of the decline taking place in September and October.10-11-2007
A number of bullish analysts are also pointing out that over the last 100 years, September has been the worst month of the year, but it’s not worth thinking about, because the average decline was only 0.75%.
It would seem that more than just averaging all Septembers should be involved. What were the results for Septembers when conditions included the market being overvalued by as much as 35% to 65% based on P/E ratios, Price/Book ratios, market capitalization ratios, the Q-ratio, investor sentiment being at high levels, in the second year of the Presidential Cycle, and so on?
It’s like the old jokes:
A guy drowns wading across a pond with an average depth of three feet. He didn’t consider the numerous 20 foot holes.
An economist puts his head in the oven and his feet in the refrigerator. Asked how it felt just before he passed out, he said, “On average, not bad.”
It’s like saying the stock market has made an average annual gain of 2.4% since 2000. Whoops, but there were some 50% holes along the way that many of those wading through it drowned in, and most of the rest were left gasping for air. As another old saying goes, “You don’t drown from being in the water. You drown by not getting out before you go under.”
I noticed an article this week opining that the current economic recovery has two more years to run because the three expansions prior to the 2008 meltdown lasted an average of 95 months (7.9 years). It was backed up by another average, that on average those three expansions didn’t end until three years after the unemployment rate had fallen to between 5% and 5.5%.
However, if you read it through to the end, the article did finally drew the conclusion that “The previous cycles may be a poor guide to how long the current one lasts.”, citing the different conditions this time, that the output gap may be smaller, the employment picture is quite different, and interest rates have been stuck at a record low zero percent for five years. And it ends by quoting Olivier Blanchard of the IMF saying, “The economy fluctuates between normal periods, and abnormal periods when it meets the constraints of zero interest rates and weakens suddenly. Before the crisis we assumed we would stay away from those constraints. Now we know that once in awhile we shall get into that region and we have to be ready for it.”
Are markets still at an important juncture or all clear?
Did the S&P 500 closing at 2,003, breaking out above 2,000, signify an all clear for another leg up. Or are too many other indexes still at questionable junctures, at potential short-term overhead resistance to render a judgment?
That question is not only regarding the U.S. market but markets in Europe.
Other Voices – Lots of Choices.
Bloomberg View, Mark Gilbert: ‘Germany to Europe: Help Isn’t on the Way’. “German Finance Minister Wolfgang Schaeuble has bad news for anyone hoping the European Central Bank will ride to the rescue of the ailing euro region:
“Monetary policy has come to the end of its instruments. I don’t think ECB monetary policy has the instruments to fight deflation, to be quite frank. What we urgently need is investments, regaining confidence by investors, by markets, by consumers.”
His comments, in an interview with Bloomberg Television, coincide with figures showing annual inflation slowed to 0.3 percent in the euro zone this month. That was the weakest rate of growth since October 2009, and marks 11 consecutive months of prices growing by less than 1 percent. The deflationary danger that policy makers have been denying for months may be upon them.”
Ralph Acampora, Altaira Investment Solutions: Asked on CNBC for his take on forecasts of a mega-downturn made by analysts such as Abigail Doolittle; “I hear that and I see what they’re talking about, but . . . . honestly, if you look at the technicals as I do, there’s just no way I can make those downside targets.”
[By the way, this is what Ralph, then at Prudential Securities, said at the severe market top in December, 1999, “I’m not saying the market is in a straight line up . . . I’m saying any kinds of decline, buy them.”]
James Cramer, the street.com: ‘Expect Selling and Don’t Buy It’. “It has been so long without even a slight correction, and the upward move has drawn so much money into the market, that there will be no cushion to fall back on. Look for the big dollar amount stocks to be knocked over hard as that, oddly, is where all the momentum money is.”
Barron’s, Michael Kahn: ‘Stock Market Should Keep Rising—at Least for Now’. “Only on Wall Street does a record-setting performance stir worry. Despite a blistering rally from early August that pushed the Standard & Poor’s 500 to the 2000 level for the first time, some measures of sentiment remain on fear alert. The CNN Money Fear & Greed index remains at a fearful 34 out of 100 (the higher the number the greater the greed).
But for anyone who tunes everything out but the trend, there is no immediate reason on the charts why the rally should end, at least not in the short term. Several weeks down the road, however, may be a different story as certain factors, including the Federal Reserve, build a bearish picture.”
Shawn Langlois, MarketWatch: “Labor Day weekend should be enjoyed, with a low level of market-top stress to detract from the beers and barbecue. That’s probably the way it felt for investors on Labor Day in 1929, too. . . . . After all, stocks were taking out new highs then, as well. And the Dow would knock out another record high the day after Labor Day. . . . However, that September 3rd peak would be the last for awhile. The 1929 October crash gets the press, but it began to unravel much earlier.
To read my weekend newspaper column click here: The Eurozone is a Growing Problem for the U.S. Economy
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Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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