Sept. 01--September could be as tough on your nerves as August.
Last month was the harshest for the Dow Jones industrial average since May 2010, when the stock market was making its way out of the mess known as the financial crisis. And now, after losing 6.6 percent in the Dow in August, investors go into a month notorious for roughing up stocks.
"September is the only month in which the S 500 fell more frequently than it rose," said Standard Poor's IQ strategist Sam Stovall. And a cruel August doesn't necessarily treat investors to a more benevolent September.
This August, the S 500 fell about 6.3 percent. Stovall found that since 1945 when the stock market index has fallen more than 5 percent in August, it has declined 80 percent of the time in the subsequent September. The decline, on average, has been another 4 percent drop for the month.
More is working against your 401(k) and other investments than simply historical trends. The pressures of the global economy have been weighing on the ability of companies to generate profits, and ultimately stock prices are based on company earnings. Company profits suffered a disappointing second quarter. Now, as analysts examine companies, they are projecting that at the end of this quarter, the 500 businesses that make up the Standard Poor's will average a 4 percent decline in operating earnings per share.
"With concerns continuing to swell over the slowdown of China's economy, third-quarter earnings per share performance may weaken even further," said Stovall.
Since the highs in the market on May 21, the sectors of the market that have had the most trouble with earnings, and been battered the most in the stock market, have been companies that sell commodities -- everything from oil to basic industrial and building materials such as copper. That's not a surprise given the extreme slowing that's been taking place in China. It's the second largest economy in the world and a huge consumer of commodities.
Yet oil took a surprising swing in the other direction during the last three days, rising a remarkable 27 percent. Analysts are still debating whether that upturn is coming from an increase in demand, a downturn in supplies or just a short-term rebound as bargain hunters decided to buy after a severe plunge. But if oil prices remain higher, the gain in price could be tough on the economy in one respect: The excess pocket change that oil's been putting in people's pockets could dissipate, making it tougher on consumers to spend as much as needed to counterbalance slow growth in the industrial economy.
Industrial stocks have plunged about 10 percent since May 21 as companies have reported sales crimped by the strong dollar and a slowing global economy, according the analyst Howard Silverblatt, of Standard Poor's. Energy stocks fell about 17 percent in that short period and materials about 15 percent.
The best sector during that treacherous period has been consumer discretionary stocks, such as retail. Those stocks lost only 2 percent amid last month's jitters. But one driver of investor optimism has been the expectation that low oil prices would entice people to spend their extra pocket change.
Many individual stocks have been hurt more than the averages, and especially those heavily dependent on China and emerging markets. In Illinois, Jones Lang LaSalle, a real estate company with an international reach, dropped 16 percent. Deere, which sells equipment for construction and farming, dropped 13.5 percent, food company Mead Johnson declined 11.4 percent, and aircraft maker Boeing dropped 9.4 percent during the last month.
As September opens, investor uncertainty is growing.
"We would expect volatility to remain as the markets sort out the heavy economic slate this week, more news from China and debate whether the Fed will raise rates," said analyst Paul Nolte, of Kingsview in Chicago.
Until the recent downturn, low rates encouraged investors to buy stocks rather than low-interest government bonds. But concern has been growing that when the Federal Reserve raises rates that will throw a scare into stock investors.
Last week stocks climbed when comments by Fed governor William Dudley sounded like perhaps the Fed would wait instead of raising rates at a time of growing angst about slowing outside the U.S.
Then, Monday morning investors turned nervous again about a potential Fed interest rate increase this September after comments at a worldwide central bankers conference in Jackson Hole suggested the rate increase might still happen during the month. Fed officials have emphasized that the U.S. economy continues to seem resilient even though global concerns have been building.
Hints into the Fed's possible direction may come Friday as employment numbers are released for August. Those figures may start to show whether the U.S. economy has been strong enough to thwart the drag from the rest of the world. A strong U.S. could give the Fed the green light to raise rates.
gmarksjarvis@tribpub.com
