The markets closed out August with yet another losing session. There was a midday attempt to rally stocks but what looked like, at least to me, overseas selling in the more liquid US markets, repelled any rally attempt. So we clock out August with a decline of 6.26% for the S&P 500 (SPX). It is the worst monthly decline since the 6.27% decline in May 2012. The decline for August 2015 was the fourth decline in the last six Augusts.
So as we enter September; the cruelest month for stocks, in any years, and even worse in a Pre-election year; the SPX is off 4.21%. I know it feels worse than that because of the drubbing in August that we just took.
Just because we are down for the year, it does not mean that we are in a bear market. Recall that in the midst of the great 1982 – 2000 bull market, the SPX declined 6.56% in 1990 and 1.54% in 1994. The 1950s-1960s bull market had four down years interspersed within it. Since the market bottomed in 2009, 2011 had a modest decline of 0.04 index points, which is hardly a decline, but it was not an advance. So, as you can see, one off year is not a bear market make. In fact, it is a healthy period of digestion and consolidation before the markets resume their upward move.
My good friend and client Alex, a devout Christian, and I have been talking about Jewish numerology and the concept of the Shemittah. It is essentially the concept of a Sabbatical year, a year of rest. Some Evangelicals might argue that as the current Shemittah year is about to end, a catastrophic event will occur in the stock market. I don’t buy that forecast, nor do other observant Jews. I do admit it makes for interesting conversation.
However, I do buy the fact that markets, just like people, animals and land need a rest. The stock market can get exhausted after a while. So, just like in 1953, 1957, 1960, 1962, 1990 and 1994, we may have a year where the market just needs a rest in the midst of a bull market.
Bull markets, however, do not die of old age. They die of recession. We are not about to enter a recession. The Federal Reserve does not increase interest rates at the beginning of a recession. They increase interest rates during an economic expansion and begin to cut rates during a recession. The FOMC is about to start a tightening cycle. Bull markets top out at peak valuations. By many measures we are far from peak valuations. Finally, recessions begin with widespread gluts. With the exception of crude oil, there is no evidence of systemic gluts.
Overnight, continued weakness in the Chinese markets once again dragged US stock index futures lower. Periods of volatility and instability take a while to heal and we have to be patient while that healing takes place.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC held no positions in stocks mentioned; although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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