The Worst Month for Stocks Starts Now
The worst month for stocks starts now… The 'masses' are complacent… This chart will tell you when it's time to get bearish… How to do less, risk less, and make more money…
Regular Digest readers know September is historically the worst month of the year for U.S. stocks. But you may not realize just how significant this trend has been.
According to research firm Bespoke Investment Group, September is the only month of the year in which the Dow Jones Industrial Average has closed lower on average over the last 20, 50, and 100 years. As it reported in a note this week (emphasis added)...
Market bulls never like when our September seasonality report comes around, because it has historically been the worst month of the year for stocks.
Over the last 100 years, the Dow has averaged a decline of 0.96% in September with positive returns just 42% of the time. No other month of the year has even averaged a decline over the last 100 years, and September has averaged a decline of nearly 1%.
Worse, as we mentioned on Monday, even the usually bullish election-year tailwinds aren't enough to overcome this trend. Jeffrey Hirsch, editor of the Stock Trader's Almanac, explained in a note last week...
September's performance does improve slightly in election years, but it is still negative nearly across the board. Only the Russell 1000 and Russell 2000 have been able to escape negative territory and post modest 0.2% and 0.7% average gains respectively in the last nine election year Septembers.
Of course, none of this means that stocks can't defy the odds and move higher this month. But regular readers know seasonality isn't the only reason to believe a decline is likely...
Stocks are getting expensive... corporate earnings have declined for five straight quarters... insiders have been bailing out... and the Federal Reserve is talking about raising interest rates again.
In a note to clients yesterday, David Rosenberg, chief economist for wealth-management firm Gluskin Sheff, added another...
Rosenberg noted speculative long contracts on the Dow Industrials at the Chicago Board of Trade soared to an all-time record high last week... and similar bets on the S&P 500 Index have "ballooned" 70% since mid-July to three-year highs. Meanwhile, speculative short positions on the CBOE Volatility Index ("VIX") – the market's fear gauge – are also at record highs.
In short, traders are betting that stocks will go higher, and volatility will go lower, like never before. Rosenberg says these speculative extremes are a "vivid sign of just how complacent the masses are."
Stansberry Short Report editor Jeff Clark is also getting bearish again. But he's looking for a specific sign to confirm that the "risk on" trade is reversing. As he explained in this morning's edition of our free Growth Stock Wire e-letter...
High-yield bonds are a terrific gauge of investors' risk appetite. As long as the high-yield sector is trading well, investors are willing to take on risk and will likely keep bidding up stock prices.
It's when the high-yield sector breaks down and investors are no longer willing to take on risk that we should start to worry about the stock market.
Based on the current action in the high-yield sector, though, there's no reason to be overly concerned... yet. Take a look at this chart of the iShares iBoxx High Yield Corporate Bond Fund (HYG)...
As you can see in the chart, HYG hit a new yearly high this week. So Jeff isn't ready to get too bearish just yet. But he notes there are some significant warning signs here...
The chart of HYG is forming a bearish rising-wedge pattern with negative divergence on the moving average convergence divergence (MACD) indicator. Breakdowns from this type of pattern can be swift and severe.
There's still room inside the pattern for HYG to push higher. But HYG is approaching the apex of the wedge. So we're probably no more than a week or so away from a breakout one way or another.
Jeff says that breakout could give us a good indication of where the market is headed over the coming weeks.
In short, if HYG breaks out to the upside, it's a sign that investors' risk appetite is strong, and stocks are likely to head higher. On the other hand, if HYG breaks down from this pattern, stocks likely will, too.
Finally, if you're concerned about a market correction – or are simply interested in improving your investment performance – be sure to check out the special educational video from our friend Dr. Richard Smith, founder and CEO of TradeStops.
This video addresses one of the biggest and most common mistakes investors make: overtrading...
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But that's not all. Richard will also share a number of insights and strategies – like his seven principles for foolproof investing – that can help you become a much better investor, even if you don't use TradeStops.
This educational video was originally recorded exclusively for his TradeStops Premium and Lifetime members. But Richard has graciously agreed to share it with all interested Stansberry Research readers today, absolutely free of charge and with no obligation. He has even made it easy to pause, rewind, and fast-forward the presentation if you want to take notes or need to step away.
The only condition is it won't be available for long. Click here to view it now.
New 52-week highs (as of 8/31/16): Berkshire Hathaway (BRK.B), CME Group (CME), BlackRock Floating Rate Income Strategies Fund (FRA), and Invesco High Income Trust (VLT).
Several more subscribers weigh in on the recent "mini panic" in gold. Send your notes to feedback@stansberryresearch.com.
"I checked the gold in the closet. It looked about the same size it was 10 years ago, the last time I looked at it. What's the panic?" – Paid-up subscriber Pete Kelly
"Everyone made nice profits on this ride but remember it's not over. TradeStops is working great with the trailing stops. Also took some profits off the table and adjusted positions. If anyone thinks this is over good luck with that. I'm prepared for $1,250 gold if our bankster in chief follows through on rate rises (watch the stock market plunge), remember the beginning of the year. If the rates do go up well I will be adding to my positions on the low and get ready for the next ride up. There is no real growth in the world economy plus the debt will never be paid. The raising of interest rates will just speed up the next crash." – Paid-up subscriber R.J.
"Despite the fear mongers among us, gold and silver should not be viewed as pure investments, but as an insurance policy against our fiat money supply. We are looking at a temporary correction to the large increase in precious metal prices since the first of the year. Contrary to what we are hearing and reading, this is the time to be buying more and more. Our dollar has been showing strength recently, but it is a mirage. I have almost $500,000 in silver and gold coins and about half again as much in gold and silver stocks. I am in it for the long run even though I am 85 years old. At least my wife and children will survive the coming global debt collapse." – Paid-up subscriber Sam Lasley
"My 89 year old mother has a $700,000 stock and bond portfolio, plus a pension that pays for most of her expenses. What percentage of her portfolio should I recommend she hold in precious metals and their mining stocks?" – Paid-up subscriber Mike Sanders
Brill comment: Thanks for the e-mail, Mike. Unfortunately, we're prohibited from providing individual investment advice, and we simply don't know enough about your mother's financial situation to do so if we could. We can tell you our editors generally recommend putting between 10% and 20% of your total portfolio in the precious metals, as a combination of physical metals and a diversified selection of gold and silver stocks. If you'd like more guidance on how to divvy up your investments into each of these "buckets," consider a subscription to Stansberry Gold & Silver Investor. You can learn more right here.
Regards,
Justin Brill
September 1, 2016
Baltimore, Maryland
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