It’s been an interesting end to the summer. In most mid-term election years, we see putrid returns this time of year. In fact, September is statistically the absolute worst month, followed by August. I’ve been getting a lot of questions lately about when the market is going to peak and topple, and today I wanted to share a little unbiased, objective analysis so you can see where things really stand.
The reality of the situation is this: August was a positive month when it’s normally negative, and September is panning out to be a good month for the stock market as well.
Seasonality statistics are useful when analyzing the markets, but I think they’re especially valuable when the stocks instead manage to buck the historical trend. This is exactly what’s occurred so far this summer.
If you take a gander at the chart below, you’ll see that the Dow Jones Industrial Average has finally managed to surpass its previous all-time-high, which took place all the way back in January. Secondly, you’ll notice that the shorter-term trends (in Red and Blue) are both sloping up and trading above the long-term trend (in Gray). Lastly, observing a momentum indicator in the lower pane (Relative Strength Index), notice that we’re finally seeing bullish push, north of 70, for the first time in eight months.
These are NOT bearish, scary, apocalyptic signs that the market is on the verge of a collapse. In fact, the evidence is pointing quite to the contrary:
- We just observed a Dow Theory buy signal this week as both the Dow Industrials and Transports triggered buy signals, putting them both in-sync with one another.
- Small and Mid-cap stocks continue to show momentum, and it sure is difficult to have a crash when these smaller companies are doing well.
- Financial stocks are beginning to break out as interest rates are popping, and there’s never been a recession in history when Banks were doing well.
I could go on… but the bottom line here is that the market still looks very positive.
Sure, it’ll crash someday. That’s inevitable, and we’ll be ready to dial down the risk in our portfolios when it does. But until then, it makes no sense to “wait until after the crash before they invest your money.” The same goes for making big changes in your portfolio.
As the summer months end, the big, institutional traders come back to their desks, and along with them comes more volume, and statistically, the 4th quarter is typically a good one in mid-term election years.
So at least for now, it’s my expectation that this positive momentum will continue, at least for the next 4-6 months or so. There really isn’t a lot of weakness out there to be worried about.
I hope you learned something and enjoyed this update on the state of the markets. Meanwhile, have a relaxing, fall-weather weekend and we hope to hear from you soon!
Till next time…
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* Adam Koos, CFP® is a CERTIFIED FINANCIAL PLANNERTM Professional, as well as president and portfolio manager at Libertas Wealth Management Group, Inc., a Fee-Only Registered Investment Advisory (RIA) firm, located in Columbus, Ohio.
The opinions mentioned in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser and strongly consider interviewing a fee-only financial advisory firm, prior to investing. Past performance is not guarantee of future results. Economic forecasts set forth may not develop as predicted. The views and opinions expressed in this commentary are those of Adam D. Koos, CFP® and do not represent the views of TD Ameritrade Institutional and its affiliates. Investing involves risk including loss of principal.