Investors apparently didn't get the memo reminding them that September ranks dead last in monthly stock market performance the past 50 and 100 years.
The Standard & Poor's 500 index, powered by promises of unprecedented monetary stimulus from central bankers in the USA and Europe, has bucked the seasonal market malaise and climbed 2.5% since August. "Seasonality was trumped by policy-driven headlines," says Stephen Wood, chief market strategist at Russell Investments.
The bullish tone started on Aug. 31, when Federal Reserve Chairman Ben Bernanke signaled that the Fed was ready to assist the economy again with a third round of bond purchases, or QE3. In mid-September the Fed announced QE3, a plan to buy $40 billion in bonds monthly to try and keep rates low and boost growth.
"The Fed," says Jeffrey Hirsch, editor of the Stock Trader's Almanac, "basically backstopped the stock market and said, 'We are here.'"
Then on Sept. 6, the European Central Bank said it too would embark on a bond-buying program to keep borrowing costs low.
But the rally has run out of steam in recent trading sessions -- including the S&P 500's 1.1% drop Tuesday -- as investors have reset their sights on potential obstacles, Wood says.
The third-quarter profit-reporting season is nearing, for instance, and analysts predict companies will post lower earnings than a year earlier for the first time since the financial crisis ended.
Also, there's the uncertainty of the "fiscal cliff," a combination of tax increases and government spending cuts that could push the economy back into recession if Congress doesn't act by year's end to avert it. "What politicians do or don't do will be critical," Woods says.
Also looming is October. While it is the third-best-performing month over the past 20 years, it also has earned a reputation as the "jinx month" from the Almanac due to stock-market crashes that occurred in October of 1929, 1987 and 2008.
But markets will continue to be juiced by the promise of more stimulus, says Paul Schatz, president of Heritage Capital. While he thinks a market drop of 2% to 8% is coming in the next few weeks, Schatz advises buying the dips.
"Nothing has changed," he says. "The Fed and ECB are in still in the market in a big way."
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