Call it the end of summer doldrums. According to S&P Capital IQ,
since 1980 August has been among the worst of all losing months -
averaging a 4.38% decline. The firm’s chief equity strategist Sam
Stovall blames the drop on vacationing traders. Their absence broadens
the impact of any kind of market jarring events such as we saw last
week.
Stocks
so far seem to be holding on with their fingernails, but the only
months that perform worse than August are... September and October.
Stovall chalks it up to “third quarter earnings reporting season in
September, mutual funds end up rebalancing their holdings, doing some
window dressing, getting rid of some of the dogs.” He adds markets may
bounce back come October.
Now
throw in the fact that it’s been 34 months since the last correction
(versus an average span between pullbacks of just 18 months.) Stovall
says it maybe time to start resetting those dials, “we’ve gone almost
three times as long as without a decline of ten percent or more as we
have on average since World War 2. ”
One
reason for the delay in the correction is the good run we’ve seen in
earnings results. S&P predicted 6.6% earnings growth on average for
the second quarter, and now they are seeing a 10.2% increase from a year
earlier. Stovall notes the U.S. right now looks pretty good compared to
the rest of the world.
“Growth
is expected to be improving here in the U.S. whether you look at
economic growth or earnings growth, it does appear to be a little more
attractive and a little more stable,” he says.
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