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Summer Doldrums?


August is normally one of the best months for The Market, while September is normally one of the worst. Conventional wisdom is that most traders are on vacation during August but thinking about their portfolios. When they get back to work, they start selling to re-position their portfolios, which triggers the “September Slump”. But, that is mere conventional wisdom.

Yesterday, the bad economic news was that existing homes sales fell 27%, much greater than the 13% economists were expecting. Today, the bad news is that durable goods orders dropped 3.8%, ignoring the wildly volatile transportation sector, when economists were expecting a small increase (0.5%). In addition, new home sales dropped 12%, while economists were expecting an increase of 12%.

Months ago, I predicted The Market had greatly out-paced the The Economy, and that The Market would be lackluster this year, until The Economy had a chance to catch-up. Now, it looks like it will take even longer to catch-up. I’ve also been expecting the S&P to fluctuate between 1050 and 1150 this year. It is now slightly below that, which could mean the The Market is under-valued. Or, it could mean the The Economy is over-rated.

Ken Langone is a highly-respected investor (think Home Depot), who believes there will be no “double-dip” recession, because we never exited from the last one. The good news last Fall and this Spring were simply “sugar-highs” from the Stimulus Bill. Now that the stimulus is being exhausted, we are still stuck with the same old recession.

The continuing flow of economic news confirms that The Great Recession was deeper than anybody expected, which means it will take longer to dig our way out. Certainly, a tax increase makes no sense now. However, cutting spending/stimulus also makes no sense now. But, the combination means we will have a bigger deficit later, with even larger tax increases then.

I prefer the more boring Summer Doldrums of August and dread September!

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