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September is Stocks’ Cruelest Month but Did Punishment Come Early?

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September 1, 2015

Strap in. This retreat is no small affair as long as China’s economic problems and interest rate uncertainty smother financial markets. The downbeat backdrop cloaks the start of the typically underperforming month of September. And it leaves investors wondering if punishment for the bulls simply came early this year, or if more is in store?

Today’s driver? China’s official manufacturing purchasing managers’ index fell to a three-year low, sending global stock markets reeling yet again. Oil futures eased, the dollar traded mixed against the majors, and gold gained as it attracted perceived “safe-haven” demand. State-controlled Chinese factory-sector data is mirroring the downbeat tone in privately produced reports, which leaves some observers wondering if conditions are even weaker than China’s government is willing to show.

China's official Purchasing Managers' Index (PMI) fell to 49.7 in August from the previous month's reading of 50.0—the weakest showing in three years. The separate Caixin China manufacturing PMI showed a final reading of 47.3 in August, the lowest since March 2009. In Europe, Markit's final manufacturing Purchasing Managers' Index came in at 52.3 in August, below an earlier flash reading of 52.4. The figure has been above the 50 mark that separates growth from contraction for over two years. The U.S. issues its own purchasing managers’ data mid-morning, and a weak reading could add to negative sentiment.

SPX-support-1922

FIGURE 1: CHART CHURN?

The S&P 500 (SPX) closed the books on a tough August. Near term, support is established at 1922. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

stock-volatility-index

FIGURE 2: VIX ON THE MOVE.

Short-term traders generally embrace this heightened volatility, reflected in large swings last week for the CBOE Volatility Index (VIX), the market’s “fear gauge.” VIX has reduced the severity of its moves but remains one key indicator for broader stock change. On Monday, VIX rose 9%. It stands more than two times higher than the reading near 12 to start August. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Sweet September? Not Usually. September trading begins after the Dow Jones Industrial Average ($DJI) ended August with its steepest monthly loss in more than five years. The broader S&P 500 (SPX) and the tech-concentrated NASDAQ Composite (COMP) recorded their largest monthly declines since May 2012. Since 1950, September has been the weakest month in any given year, according to Standard & Poor’s data.

Oil Stocks Hit. Oil-related companies were among biggest early decliners, tracking a more than 3% drop for crude futures prices and trimming a recent multi-day price climb, up from multi-year lows. Chevron (CVX), Transocean (RIG), and Marathon Oil (MRO) logged early losses of 3% to 5%. OPEC said in a Monday release that continuing downward pressure on prices “remains a cause of concern for OPEC and its members” as well as “all stakeholders in the industry.” The cartel said there’s “no quick fix” for the low-price environment. Saudi Arabia, OPEC’s largest producer, will continue to defend its market share, said analyst notes responding to the OPEC release. Since last Thursday, WTI crude had logged an over 27% gain, its largest three-day dollar increase since February 2011 and the biggest percentage increase since August 1990.

Car Sales Roll In. Fiat Chrysler issued a better-than-expected 1.7% increase in U.S. auto sales in August despite a calendar quirk and a tough year-over-year comparison. That result extended the auto maker's streak of sales gains to 65 months and could help set the tone for this important measure of consumer confidence. More sales results from auto makers are due throughout Tuesday, and overall U.S. sales are expected to cool in August from a strong summer. The impact of a later Labor Day could impact the results. Eyes are also on Chinese data. In July, China passenger-vehicle sales fell for a second consecutive month. 

Good trading,
JJ
@TDAJJKinahan

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