Wake me up when September ends
Nearer to everyone’s mind is the collapse of 158-year-old Lehman Brothers last September, triggering the fallout of financial markets. S&P 500-stock index dropped 9% last September and further 17% in October.
Many Septembers have nasty reputations. Great Depression started with a stock market crash in September 1929. During September 1930, the Dow Jones fell 15%. The worst fall in Great Depression and in history, was September 1931 where the index plunged 30.7%.
Then there was S&P 500 plunges of 12% in 1974; the 1997 Asian Financial Crisis which worsened in September; Black Monday of 1987 which came after stocks started going downhill in late August; September 11, 2001 terrorist attacks, where DJIA fell 14.3% in a week and 11% drop in S&P 500 in 2002. Locally, some cite the Hungry Ghost effect.
According to the Stock Trader’s Almanac, the S&P 500 index drops an average of 1.1% in September, making it the worst month of the year. Mentality can weigh surprisingly heavy on the markets. The return of finance professionals after summer holidays as a reason for volatility has been greeted with skepticism. “No modern funds and traders of any decent size goes for the whole summer off”
There are economic reasons to be wary of September 2009, such as the expiration of stimulus in the U.S. to auto sales and the housing market, worries about corporate results and policy proposals in Washington. Shanghai Composite has already declined 20% from September highs.
Global stock markets have 40% leap since March. This kind of performance is hard to sustain without a break. Clearly, there is cause to go sideways or a correction. After months of gains, the markets needs some new good news but is unlikely to get it with the economy recovering slowly.
Closer to home, between Credit Suisse, DMG & Partners and OCBC Investment Research, 12-month STI target varies from 2,800 to 2,991. Most research houses see modest raising of earnings forecasts and money supply/liquidity to be the main support for equity markets. Shifts to caution now favours companies in industrials, transport, telcommunications and property.
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