The equity markets often face volatility during the month of September.  Each letter of the acrostic SEPTEMBER ANGST is to serve as an update of issues, observations, philosophies, and trends – shorter and longer term.  Here to discuss should you be interested in a deeper dive.  

S – September has historically been the worst performing month of the year for the equity markets.  Although there are certainly exceptions to the rule.

E – Earnings season for the second quarter draws to a close for components of the S&P 500.  Corporate earnings have been strong, creating record highs in the stock market during the month of August.  

P – Price to Earnings ratios are high for stocks.  The S&P is currently trading near 22.5 times 12-month forward earnings.   This is rich relative to historical levels.

T – Timing the market is said to be a fool’s game.  Nonetheless, fundamentals matter.  Valuations are high, uncertainty is great, and even seasonality is a backup factor.  For those with needs of cash in the coming 12 – 18 months, it is a prudent time to consider raising funds now.  For those with a longer-term investment horizon, and willing to ride out the potential lumpiness of the markets, staying invested remains prudent. 

E – Employment data is to be released Friday.  If weak, then the Fed may view unemployment as a bigger concern than inflation.  If so, rate cuts might soon follow.  The upcoming FOMC rate decisions are September 17, October 29, and December 10.  Inflation measures CPI and PPI are to be released September 11, and 10, respectively.  This data could also influence the Fed’s upcoming rate decision.

M – Monetary policy is in the spotlight.  If changes to policy and the makeup of the Federal Reserve are viewed as politically motivated, there could be unintended consequences.  Long-term rates could move higher with fear of longer-term inflationary pressures, even as shorter-term rates are lowered by the Fed.

B – Bureau of Economic Analysis (BEA) showed a rebound in GDP to 3.3% in 2Q, after an initial Q1 negative reading.  The Atlanta Fed’s most recent GDPNow reading for Q3 is at 3.0%.  Although the growth rate for the economy has been modest over the first half of the year, the current outlook does not suggest a recession – at least in the near term.

E – Expensing of capex in year one, due to recent changes in the law, could impact corporate taxes.  In general, this will likely be a positive for the markets and for the economy.  Increased capital expenditures on the horizon?

R – Reason and logic ultimately win when it comes to analysis and investing.   However, in the interim, things get choppy as investors face uncertainties while the dual threats of fear and greed run wild.  Fortunately, we can allow fundamentals to keep us on the right track despite the unknowns and emotional turbulence.  

A – American Exceptionalism, traced back centuries, appropriately describes the US and has benefited the domestic markets.  At one point, this concept may have been synonymous with the American grit and the good ole get-it-done attitude.   US exceptionalism encapsulates a complex blend of robust capital markets, entrepreneurial spirit, hard work ethic, education, skilled work force, technological advancements, a system of law and order, less cumbersome rules and regs, along with a pro-business tax policy providing a healthier business environment and therefore greater success.  Due to these factors, investors around the world have been willing to pay a premium for US domiciled companies.  As lines blur and we potentially enter a new form of capitalism with greater influence from the government over business, will a premium still be warranted?  This is something concerning to watch over time.

N – Noise tends to drive short-term moves in the markets.  This creates volatility and therefore opportunity yet uncertainty and at times unease.  This is the reason long-term fundamentals are paramount when investing over time. 

G – Government shutdowns create greater uncertainty.  A government shutdown is looming as the October 1 deadline quickly approaches. This will likely garner increasing attention as the deadline draws closer.  

S – Situations change.  If your need for cashflow, or your desired risk level, has changed, it would be prudent to evaluate and discuss.  Let’s make certain your investments match your goals and objectives.

T – Trump, taxes, tariffs, trade, technology, and geopolitical tensions – all have the ability to influence the markets.  To the degree that fundamentals change, it is prudent to discern between long-term implications and short-term gyrations.  We are here to help.

While these various factors create SEPTEMBER ANGST, we maintain that fundamentals are more important than any specific month in the markets.  Interesting times!  Thank you for your trust and for letting us be part of your team!