Will September be Good or Bad?

Will September be Good or Bad?

Hi, Friends,

Much has been written this week about how September is the worst month of the year for stock market traders and that historically this month posts the biggest % losses on the S&P, Dow and NASDAQ. And, in fact, the S@P has been down 56% of the time in September since 1975.

But, for us as sector traders, we have to look beneath “the market” since the whole idea of sector trading is to find the best performing sectors, sectors that are outperforming the market, focus on those, and so enhance our opportunities to outperform the averages.

Looking at past Septembers back to 1999, we find that the best performing sectors have outperformed the market by significant percentages. Here’s a comparison between the S&P and the best performing sectors in September dating back to 1999.

Year S@P 500 Best Performing Sector

1999 -2.85% Precious Metals +29.2%
2000 -5.34% Utilities +10.4%
2001 -8.17% Precious Metals +3.4%
2002 -11% Gaming +7.3%
2003 -1.2% Finance +6.3%
2004 +.94% Steel +13.2%
2005 +.69% Precious Metals +15.9%
2006 +2.46% Textiles +8.7%

So, there are always opportunities, even in down markets, and the focus of our sector rotation efforts is to pinpoint those sectors outperforming the market and take advantage of those opportunities that constantly appear.

The View from 35,000 Feet

The big news this week was the weekly jobs report out on Friday that showed an unexpected drop of 4,000 non farm payroll jobs instead of the forecast 100,000 increase. This was the first drop since August, 2003, and sent the markets reeling since it came on top of the well publicized sub prime credit crunch and deflating housing bubble.

Clearly, the economy is slowing and the chance of a recession is rising as the wealth effect from rising housing prices and easy credit quickly evaporates. And now all eyes turn to the Federal Reserve to see if “Gentle Ben” and his cohorts can offset the effects of a slowing economy, a credit crisis and a collapsing housing market.

And we’ll get our first look at what the Fed has in mind as Fed Governor Fredric Mishkin, San Francisco Fed President Janet Yellin and “Gentle Ben” himself all give speeches early this week. Janet Yellen will kick off the round of speeches on Monday Morning at the National Association for Business Economics meeting in San Francisco; Mishkin, a voting member on the Open Market Committee, will speak Monday night at New York University, and “Gentle Ben” will speak in Berlin on Tuesday.

At the recent Fed conclave in Jackson Hole, Mishkin said that, “we have the tools to limit the negative effects on the economy from a housing price decline,” and market watchers will be watching his speech carefully for more details about how the Fed plans to deploy those tools.

The futures market is factoring in a 75% chance of a rate cut at the September 18th Fed meeting and some analysts are forecasting a rate cut even earlier than that. Almost everyone thinks a rate cut is a foregone conclusion and now the speculation lies around whether it will be a 25 or 50 basis point reduction.

Clearly what the Fed does and says over the next 9 days will determine whether or not September will be good or bad for stock market investors around the world.

Sector Spotlight

Precious metals, natural resources and energy led the way this week and laggards were home construction, real estate and the dollar.

We have no changes to our positions or stops this week.

Yesterday, my younger son and I made our traditional fall expedition to the summit of South Sisters Mountain just outside of Bend. At 10,358 feet, it’s a towering volcano and the roundtrip climb is 12 miles with an elevation gain of 5,000 feet. Going up is a taxing, aerobic grind and coming down is tough on the old knees, feet and ankles.

But, the summit is the reward with commanding views of the Cascade peaks of Middle Sisters, North Sisters, Mount Washington, Jefferson, Hood and Adams, the Cascade Lakes region and Bend off to the east. There’s always a great photo op, plenty of trail mix and a stunning sunset on the way down, and yesterday was no exception.

As we descended into the darkness, I thought of how similar climbing South Sisters is to stock market investing and sector rotation investing in particular. It’s not easy, oftentimes challenging and not everyone can be successful, but the rewards of the summit far outweigh the effort needed to get there.

Have a great Sunday afternoon and upcoming week.

Your Partner in Prosperity,

John Nyaradi
Publisher
Wall Street Sector Selector
http://wallstreetsectorselector.com