Bearish. September (since 1950) is the worst performing month of the year for DJIA, S&P 500, and NASDAQ (since 1971). Bullish election-year forces do little to improve on September’s poor overall performance since 1950. Performance does improve slightly in election years, but it remains negative nearly across the board. Only the Russell 2000 has been able to escape negative territory and post a modest 0.8% average gain in the last ten election-year Septembers.
Frothy. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors are now at 60.0%. Correction advisors stand at 23.8% while Bearish advisors stand at 16.2%. Historically Bullish advisors at 60.0% and above is an increasing danger to the market. Timing for a top is still unknown and sentiment could remain high for weeks or even months, but caution is in order.
Improving. Compared to a few months ago, the economy has improved. The second estimate of Q2 GDP released at the end of August improved to a decline of 31.7% from last July’s reading of –32.9%. Still a historic decrease that is likely to take a significant amount of time to recover from. Unemployment is also off of its worst levels, but the trend of improvement has stalled with weekly initial jobless claims stubbornly remaining around 1 million in recent weeks. Corporate earnings, most notably from mega-cap technology, have been solid. However, millions are still struggling and further assistance from the Fed and the Federal government will likely be needed.
Broken Out? S&P 500 and NASDAQ have broken out to new all-time highs on mega-cap tech strength. DJIA is rapidly closing in on previous all-time highs and is about to get a boost with the replacement of Exxon Mobil, Pfizer and Raytheon in favor of Salesforce, Amgen and Honeywell. But the breakout is in danger as rally participation is fading with S&P 500, NASDAQ and NYSE Advance/Decline lines off mid-August highs.
0 – 0.25%. Average inflation targeting and more focus on the lower end of income spectrum when evaluating unemployment are the two new policy adjustments announced recently by Fed Chairman Powell. Once through the background and reasoning for the changes it boils down to rates will likely stay low, near zero, even longer than previously expected due to the changes. The last time the Fed stayed at 0 – 0.25% for seven years (December 16, 2008 through December 16, 2015).