That didn’t take long…

September 1, 2009

Turn the calendar to September and markets are fixated about potential problems at the banks again. The obsession with September being a bad month for stocks and for the world in general has nothing to do with it, I’m sure.

I’m certainly the last person to downplay the still tough road ahead given the state of the U.S. consumer, commercial real estate and the excesses that still need to be wrung out of the system, but the fickle trading, especially in the stock market this summer, has made it difficult to read too much into the daily moves.

But the worry does look real, at least for today, given the flows.

The DJIA and S&P 500 are down around 2% and the S&P dipped back below 1,000. Meanwhile, funds are being redirected into shorter-dated Treasuries with 2-Yr through 7-Yr yields down around 5.5BPs to 6.8BPs. The flattening of the year curve is telling you this has to do with fear, not a reach for yield (especially when the 2-Yr note is trading below 1% now.)

That this is happening on a day of solid economic data – the ISM manufacturing report not only came in much better than expected but it indicated expansion for the first time since Jan. 2008 – makes the behavior more noteworthy, even if it is coming during the last week of U.S. summer.


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Good one Agnes, it just proves the point that the markets are driven, amongst others, by sentiment and not logic. If only one could adjust portfolio structures by the minute, but alas, transaction costs makes that too expensive. I still maintain that stock strike prices based on free cash flow multiples would give a clear indication of what to sell and buy over the next 12 months. I certainly don’t feel THAT insecure about my portfolio that I will accept 1 %, even when facing a ‘v’, ‘w’ and possibly and ‘eta’ collapse in the stock markets. Surely some stocks are going to make it ? Surely options can now assist with arbitrated hedging ?

Posted by Casper | Report as abusive

I’m a fundamentalist with behavioralist sympathies so parts of your post seem a bit odd.

“but the fickle trading, especially in the stock market this summer, has made it difficult to read too much into the daily moves.”

hmmm… could have something to do with the Brownian motion character of stock prices in general but especially over shorter time spans.

This market, however, does not seem odd. Forward P/Es were up, heading towards a level that given the general state of the economy weren’t sustainable. They are now down a bit, but not to the point of widespread bargain hunting. I sold some that moved to far to fast, I’m holding some that will improve nicely with a better general economy next year. Air travel prices and apartment rents are down, however. Tuscany perhaps…

Posted by ARJTurgot | Report as abusive