Well, so much for the stock market coming to a screeching halt. The S&P 500 surpassed the 2,000 mark for the first time ever Monday and looks poised to tack on more.
The S&P is up 8% this year, but the majority of the gains have come over the past three weeks.
Some are calling the recent move parabolic and believe that the end is near. Others are saying that the combination of solid earnings with low interest rates is a “recipe for the bulls to stay in control.”
Let’s take a look at the facts and decide for ourselves.
The recent 5% move in the S&P 500 (NYSE: SPY) over the past three weeks have people in the know wondering what to expect when the market participants return in full force the week after Labor Day.
[ad#Google Adsense 336×280-IA]Stock indexes typically take a reprieve for about a month after making new highs.
There could also be some seasonal influences over the next few months, and the fact we made new highs on mind-numbingly low volume might actually have some significance.
The current extended downtrend in equity trading volume is unprecedented in the historical record and should not be ignored — particularly when you consider we are entering the weakest time of the year.
September is historically the worst-performing month for the market.
It’s referred to in some circles as the “danger” month as it is one of the few months with an overall negative return.
Since 1971, September has been by far the worst month of the year for U.S. stocks. The average September return in the S&P 500 from 1971 through 2013 is a loss of 0.64%, according to the Stock Trader’s Almanac.
Considering that only three other months show an average loss and that the second-worst loss is the 0.1%, September sticks out like a very sore thumb. Of course October, feared as the month of crashes, shows an average return of 0.74% in that period. Not as good as January’s 1.7% return, of course, but then January’s is the best performing month.)
Now, whether or not you believe in historical seasonal patterns, the September data is a useful warning sign. If the numbers simply draw your attention to September and the likely upcoming trends for the remainder of the year, they’ve served an important function.
That is because historically September shapes up as a volatile month, with far more downside risk than upside potential. September looks like a month for taking less risk rather than more, for having more money on the sidelines rather than less and for thinking about protecting gains and principal rather than rolling the dice.
And remember, since the lows established in early 2009, the S&P 500 has pushed roughly 230% higher. And if you’ve had money in the market during this time you’re likely very happy…and significantly richer…and you want to keep it that way.
But it’s my goal to help you not only continue to prosper in this market, but to keep what you’ve earned.
— Andy Crowder
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Source: Wyatt Investment Research