The summertime doldrums are over. Stocks have traded listlessly since March and have been grinding sideways in a long consolidation range — as seen best in the Russell 2000 small-cap index — as investors have settled comfortably in a low-volatility regime.
The post-election promise of pro-growth initiatives from Trump has given way to Washington gridlock and a growing realization the Federal Reserve is serious about continuing its policy tightening.
But steady, if tepid, GDP growth and an impressive energy-led rebound in corporate earnings growth has kept the bulls empowered, if not excited enough to dedicate significant new money to stocks. As a result, a directionless theme has set in.
Investors marked their calendar for September: When the Federal Reserve’s quantitative tightening decision, the debt ceiling deadline and historical seasonal headwinds all combined to threaten a downside correction — something that hasn’t happened in more than a year. Well, September is finally here as we exit the Labor Day holiday, our children go back to school and Wall Street traders are forced to return to their desks.
Click to Enlarge On a technical basis, small caps did their best to alleviate any concerns heading into the month. The index has gained in eight of the past nine sessions to retake its 50-day moving average as fears of a possible nuclear exchange with North Korea faded.
Never mind that Pyongyang continues to up the ante, with claimed progress towards a hydrogen bomb. Watch for a possible consolidation back below the 50-day, which is compressing toward the 200-day moving average in a possible topping pattern set up.
Analysts at LPL Financial note that since 1928 no other month of the year posts a worse track record than September with the S&P 500 down 1% on average. Stocks are up in September only 43.8% of the time with no other month below the 50% threshold; compared to December, the best month of the year amid “Santa Claus” rally calls, up 73% of the time.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
