August

So what is it about August anyway? Once again the month brings us angst & misery, at least in the financial markets. Kids don't notice it though thankfully. To them it's that last fling of summer before school intrudes back into their lives. In most cases  schools today intrudes earlier in the summer and for longer periods each year!

Markets of course don't know or care about seasonal patterns. They will as the consigliere used to say, "Do what they have to do to prove the most amount of people wrong.".........

               "So What Is It About August?",  Solas!, August 6, 2011.

Stocks are lower across the board this AM on two pieces of information, both of which came out late yesterday afternoon.  The first is that the US will reach its debt ceiling limits as early as October and the second {and probably the most timely of the two} is the likely US military response to Syria's alleged use of chemical weapons against civilians in its current civil war.   Stocks are currently down about 1% for the day and a bit under 3% for the month.  If this decline holds it should make August the worst performing month so far in 2013.  Even so most American stock indices are up in excess of 10% for the year right now.  One other caveat regarding the market's most recent decline.  Most of it has come on low volume.  Yesterday was the lowest volume trading day of the year.  The investment community is still vacationing and the thoughts of autumn and the final trading leg of the year won't begin in earnest until after Labor Day next week.

There is something about August that just seems to lead to trouble.  Both World Wars started in August, as did Korea and the first Gulf War.  It just always seems to be a month of international crisis and stagnant economic statistics.  Perhaps it often occurs this way because in most jobs or positions of influence, the "A Team" is away playing at the beach or perhaps August is just downright unlucky for investors.  I'll have more to say about the markets and the economy after Labor Day.  Until then I'll reiterate most of what I posted last week.

-Most of the list of things you see being rattled off as concerning markets are already known {The Syrian Crisis in recent days  and the American response of threatening military action was an unexpected event which markets  are now incorporating into their investment matrix}.  As such much of this information is likely already priced into stocks.  They are the excuse for profit taking after an uninterrupted 9% rise in stock prices.  

-Economic data is still supportive of a US economy that is expanding.  The only current debate is over the pace of that economic growth.  Expansion will provide a back stop to stock prices at some point.  A bearish note though is that most of the recent economic data has been weaker than expected.

-Markets are in the heart of the summer doldrums.  Nothing of economic consequence will occur between now and Labor Day.  The only thing that could stir the pot between now and then would be an unexpected outside event such as a major hurricane or a foreign crisis.  You've now had the foreign crisis.  The Atlantic is pretty quiet now so it is likely that we'll have to focus abroad for something that roils stocks.  

-Between now and mid-October is statistically the weakest point of the year.  Historically September is the worst month for stocks.

-There is support for the S&P 500 around 1615 by our work.  Stocks are currently overbought in both the intermediate and longer term range based on the indicators we follow.  They are short-term oversold so some kind of short term market bounce could be expected.  This is beginning to turn however and stocks are closer to reaching an oversold state by our work on an intermediate level.

One final thought.  Expect to see a lot of ink spilled over the coming debt ceiling negotiations.  In my opinion it will be a lot of noise and negotiations that ultimately will signal very little.  Congress shutting down the government over the debt ceiling for any length of time beyond something symbolic is a low probability event in our book.  Ultimately what will determine how stocks finish out the year will be corporate earnings and the shape of economic growth as we head into 2014.