Historically, the worst performing month of the year for stocks is September, and yesterday’s action did not disappoint the pessimists and those who think we are due for a correction.
The S&P 500 dropped 2.2% yesterday, to its lowest closing since Aug. 19 despite positive data received from the housing and manufacturing segments of the economy. Most of Asia followed the U.S. and saw sell-offs in the Korean Kospi (-0.6%), India’s Sensex (-0.5%) and Hong Kong’s Hang Seng (-1.8%). The lone bright spot was the China Shanghai Composite, which posted a gain of 1.2%.
Overall, the MSCI World Index of 23 developed nations lost 0.7%, taking the index down 3.2% so far this week. But many think the 54% run-up in the MSCI World since March 9 is the basis for this sell-off, not so much fundamentals.
“September is typically a very difficult month,” Philippe Gijels, a senior structured-equity strategist at Fortis Global Markets in Brussels, said in a Bloomberg Television interview. “The market going down even after good news is a sign that it’s tired and maybe ahead of itself.”
And, with any dramatic sell-off, investors can always find credence with rumors to help accelerate market movements. John Najarian at OptionMonster told USA Today that he “blamed some of the selling on unsubstantiated rumors of a big bank default, which made already jittery investors even more anxious.”
USA Today had this to add:
After the huge run-up on anticipation of an economic recovery, the market pullback is not totally unexpected, says Bob Barbera, chief economist at ITG.
The fact that stocks fell despite a key manufacturing index showing its first growth reading since January 2008 and a sixth consecutive monthly rise in pending home sales was viewed as a bad sign for stocks in the near term. Jeff Kleintop, chief market strategist at LPL Financial, says the positive economic data are “becoming less influential in moving markets,” largely because much of the good recovery news is already priced into the market.
But some feel there is still tremendous value to be found in the equity markets. Matt Koppenheffer of The Motley Fool said in his Investing column this morning: “To me, this seems like exactly the time to be investing for the long term.”
Koppenheffer had this to add: “And while investing in a broad market index today might produce good returns, there are plenty of high-quality companies out there, trading at multiples below the rest of the market, that could produce great returns.”
Investors will want to keep one thing in mind when investing, especially for the short term: Yesterday’s sell-off generally signals negative performance for the remainder of the month. According to Bespoke Investment Group, the S&P 500 has dropped an average of 2.3% in the rest of September after first-day declines of 1%-plus.
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