The market dropped like the Reds 2016 attendance last week. As Friday saw stocks suffer their worst selloff in seven months. Nine of ten sectors within the U.S. economy were lower. Only energy stocks escaped Mr. Market's wrath.
Some pundits chalked it up to newly hawkish sentiment by a couple Fed governors. But there's more to it than that.
First, market sentiment had become too bullish. Having recently achieved new all-time highs, the S&P 500 sweetly beckoned investors who, only recently, had not been bullish. And suddenly they were.
Further, Hillary's health issues have become a real story. And the market was already pricing in a Clinton victory. Given her campaign's recent tumult, the market may be repricing that narrative. That's not a political statement. But an observation. And what is good for markets is not always good for the country.
Additionally, September tends to be a volatile month. Traders -- having just returned from summer getaways -- have been watching the market with hair-trigger fingers. Looking for a reason to sell first. And ask questions later.
Moreover, we'd gone 40 days without a one-percent move in any direction. Volatility was preternaturally low. At a time when seasonality has traditionally favored a little more tumult. And, as expectations often become reality, so days like Friday will occur. Jarring us from our sweet midnight summer's dream back into September's harsh reality. Back to school. Back to reality. Back to work.
And lest you forgot, September has historically been the worst month of the year.
According to Bespoke data, the Dow has averaged a decline of 0.96% in September over the last 100 years. With positive returns incurred just 42% of the time. Over that same period, no other month has even averaged a decline. While September has given up nearly one percent on average.
Ouch.
Data of the last 50 years shows that the Dow has averaged a decline of 0.88 percent in September. Scoring positive returns a scant 36 percent of the time. Over that 50-year time frame, three other months have also averaged declines. Yet September has seen the biggest.
The last 20 years? The Dow has declined an average 0.70 percent in September. Posting a monthly drop half of the time.
But, cheer up. September has not registered as the worst performing month over the last 20 years. August has been worse. Averaging a 1.30 percent decline, Bespoke reports.
Seven of the worst 26 months ever occurred in September. In fact, if money was only invested during September, $100 in 1926 would have become $42 today.
Alas, September has one thing in its favor. When the index is up year-to-date heading into the month, returns have been much better. Averaging 0.11 percent per month.
So, if markets drop, where might you allocate capital towards month's end?
Well, midcap stocks have long ranked among our favorite asset classes. And these Tweeners have risen nearly 14 percent on the year. In fact, the middle child of the equities world just attained a new all-time high. So, that would be a pretty good place to begin.
But enough about September. How's the bigger picture?
The U.S. economy continues to grow. Albeit in much the same fashion as a sapling might in a forest of Redwoods. Never quite meeting expectations.
Every piece of good news is partially offset by some sour data point.
For instance, the labor data continues to shine. Yet, small businesses remains in a lurch. And sales of F-Series pickup trucks, typically a bellwether indicator of small business activity, were down 6.1 percent year over year.
And while factory orders rebounded 1.9 percent, their best reading in nine months, the ISM index revealed that service sector activity slowed to a 6.5 year low in August. The product of sharp declines in production and orders. Which typically indicates slowing economic growth.
The good news? The above will likely be enough to postpone any September rate hike. The bad? The U.S. economy continues to muddle forward.
Weekly Results
Major indices finished mixed down last week. DJIA lost 2.20%, S&P 500 fell 2.39%. The Nasdaq lost 2.36%. While small cap stocks lost 2.61%. 10-year Treasury bond yield rose 7 basis points to 1.68%. Gold closed up $2.86 per ounce, or 0.22%.