September has a dubious reputation among the 12 months when it comes to equity market performance. Over the past two decades, the S&P 500 has averaged a September decline of 1.1%, making the ninth month of the year the worst one for domestic stocks.
Of course, seasonal trends don’t always hold true to past precedent, giving investors hope that this September will defy past trends. Tuesday’s market action suggests otherwise.
Following another concerning economic data point and just two days after the U.S. proceeded with a 15% tariff on $112 billion worth of Chinese imports, the Nasdaq Composite slid 1.11% while the S&P 500 dipped 0.69%. The Dow Jones Industrial Average started September with a loss of 1.08%. In late trading, 23 of the Dow’s 30 members were trading lower.
“The Institute for Supply Management’s purchasing managers index fell to 49.1 in August, weaker than all forecasts in a Bloomberg survey of economists, data released Tuesday showed,” according to Bloomberg.
That report was certainly one of the reasons why stocks swooned in the first trading of the month because ISM readings below 50 are viewed as poor. Unfortunately, ominous economic data points have recently been accumulating, fueling the fires of recession speculation.
On a day like today, it’s not surprising to see higher beta stocks from cyclical sectors lead the market lower. That’s exactly what happened on the Dow. Even if I categorize Goldman Sachs (NYSE:GS) and American Express (NYSE:AXP) as value, not cyclical stocks, because they reside in a value sector, both lost more than 2% today and where joined in that dubious club by the likes of Boeing (NYSE:BA), Caterpillar (NYSE:CAT) and Dow (NYSE:DOW).
More market observers are extolling the virtues of defensive names while highlighting potential vulnerabilities in growth and cyclical stocks.
Morgan Stanley’s Mike Wilson noted, “the firm’s chief U.S. equity strategist, sees defensive bond proxies outperform growth names by another 10% as the U.S.-China trade war weighs on consumer sentiment, which adds to a long list of recessionary indicators that are already flashing red,” reports CNBC.
Dow Smart Moves
Walmart (NYSE:WMT) was one of a small number of Dow winners today. The retail giant posted a modest gain after CEO Doug McMillon said the company is moving to substantially reduce its sales of firearms ammunition following a spate of deadly shootings across the U.S. this year.
“After selling through our current inventory commitments, we will discontinue sales of short-barrel rifle ammunition such as the .223 caliber and 5.56 caliber that, while commonly used in some hunting rifles, can also be used in large capacity clips on military-style weapons,” said McMillon in a memo to Walmart staffers.
He added that Walmart “will sell through and discontinue handgun ammunition; and we will discontinue handgun sales in Alaska, marking our complete exit from handguns.”
Not surprisingly, Dow technology names were weak today, including Cisco (NASDAQ:CSCO). That stock was bludgeoned in August and is now in world of technical distress.
Separately, semiconductor giant Intel (NASDAQ:INTC) also traded lower, but company insiders remain committed to the shares. While the recent round of buys by Intel executives were scheduled, it pays to remember that insiders only buy their shares for one reason: because they believe the stock is going higher.
Bottom Line: An Ominous Start to the Dow This Month
This was not the way to start September, which I noted has a poor reputation at best. Rising volatility coupled with increasingly rough economic data puts added burdens on the White House to ameliorate the trade situation with China and for the Federal Reserve to lower interest rates, but only one of those outcomes can be seen as “reliable.”
And not to be discouraging, but here are some more tidbits on the potential for September trouble:
“The Dow Jones Industrial Average has averaged a loss of 0.75% in September over the past 30 years, CNBC analysis using Kensho shows,” reports CNBC. “In fact, the 30-stock average trades positive just 47% of the time in September. The S&P 500 does not fare much better either. In September, the broad index loses an average of 0.47% and trades positive just 52% of the time. The Nasdaq Composite averages a marginal gain in September.”
Todd Shriber does not own any of the aforementioned securities.