By George Leong for Investment Contrarians
Sep 5, 2013
Get ready for some excitement as we move into September, which is historically known to be the worst month of the year for the stock market, according to the Stock Trader’s Almanac.
The numbers don’t lie. The Dow blue chips have declined 60% of the time since 1950. The month normally begins on a high note, but ends in chaos. This was the case on Tuesday.
Yet unlike 2012, this year poses numerous risks to traders.
We have the Federal Reserve and the question of whether it will begin to taper back its bond purchases at its September 17-18 meeting. The consensus is that the Federal Reserve will likely rein in a bit to start. Of course, if the jobs numbers for August (to be announced tomorrow) stink, the Federal Reserve may decide to hold back on tapering. Conversely, a strong jobs report could force the Federal Reserve to cut back on its bond buying. Briefing.com estimates the creation of 210,000 new jobs in August and for the unemployment rate to edge higher to 7.5%. Trust me: the Federal Reserve will be watching.
The reading of the second-quarter gross domestic product (GDP) growth of 2.5% was strong and points to tapering by the Federal Reserve if it holds.
My feeling is that so what if the bond purchases are reduced by the Federal Reserve? If the economy and jobs market are improving, then we are all good. Stocks will then edge higher, not because of low bond yields and bond buying, but due to an economic recovery that drives corporate America.
And with the end of September comes the third-quarter earnings season.
We need to see corporations actually grow their revenues to drive earnings, not cut costs, as has been the case in the past quarters. A strong third-quarter earnings season could really add some punch to the stock market in the fourth quarter.
The Obama administration must also deal with the mounting national debt, which stands at $16.77 trillion and threatens to move higher despite some slowing in the rate of spending. My concern is the massive interest rate obligations, as interest rates begin to edge higher over the next few years, and they will.