It’s been an interesting September, to be sure.
Historically, September has been a particularly rough month for the stock market. Since 1950, the S&P 500 falls about an average 0.5%. It’s also the only month where it’s seen more losses than gains.
However, as I said in a previous article, I expected this September to defy expectations. And so far, it has – the S&P 500 is up over 1%. This is all the more reason to be putting fresh capital to work; in fact, I’m working on new buys for Friday in my Growth Investor October Monthly Issue – a growth stock and a dividend growth stock.
Now, there were three main catalysts behind the market strength: the U.S.-China trade negotiations, quarter-end window dressing and a decline in energy prices.
We saw the positive impact the U.S.-China trade negotiations had on stocks. For example, on September 5, the Dow soared more than 400 points on the news that the U.S. and China were tapping the brakes on their trade spat, as both sides agreed to continue negotiating in October.
As for quarter-end “window dressing,” this happens at the end of September. Window dressing is when institutional investors fine tune their portfolios at the end of each quarter. They’re attempting to make their portfolios prettier for investors by selling stocks with lackluster quarterly results and buying the best-performing stocks in the quarter. This typically occurs in the final 10 days of September. This is why, here in Market360 and in my newsletters like Growth Investor, I said the best buying window would be September 16.
The decline in energy prices is the third catalyst because, historically, energy prices decline or ebb in September due to weaker seasonal demand. The reality is that there are billions more folks in the Northern Hemisphere than the Southern Hemisphere. So, as the summer driving season winds down and the weather cools, demand for both crude oil and natural gas ebbs.
Natural gas prices are already at new record lows, and crude oil prices are poised to fall to $45 to $48 per barrel in the upcoming months. The U.S. is now the largest energy producer in the world, and the excess supply will further suppress crude prices.
Of course, this also means that inflation will remain soft—and the Federal Reserve will feel more pressure to cut key interest rates again. In fact, the Fed cut key interest rates last Wednesday, and I do expect another 0.25% rate cut in December. And Wall Street loves lower rates. Falling interest rates are very, very bullish for stocks. Any time you’re going to yield more in the stock market than at the bank, the stock market is a screaming buy.
Three Dark Clouds Hanging Over Wall Street
All that said, there are three dark clouds that could cause an increase in volatility in October – if the financial media gets its way.
The first is negative interest rates. The fearmongering media would have you believe that the U.S. will eventually be looking at negative interest rates. In fact, former Fed Chair Alan Greenspan thinks that negative interest rates are inevitable. However, Federal Reserve Chair Jerome Powell is saying that he will not accommodate negative interest rates on his watch.
Regardless of whoever is right, one thing is certain: Negative interest rates have enveloped the rest of the world.
I’m particularly concerned with the European Central Bank’s (ECB) negative interest rate policy. The ECB recently cut its key interest rate to -0.5%, down from -0.4%. Then outgoing ECB President Mario Draghi increased quantitative easing (i.e., essentially printing money to buy bonds) to further support the negative interest rate policy. In turn, the euro plunged to a two-year low relative to the U.S. dollar.
Further complicating matters is the new ECB President Christine Lagarde, the former head of the International Monetary Fund (IMF). During her time with the IMF, Lagarde provided aid to Argentina, which turned out to be a “Band-Aid” given the recent collapse of the Argentina peso. So, I remain very worried about the ECB’s negative interest rate policy under Lagarde’s leadership and expect the euro to reach parity with the U.S. dollar in 2020.
The two other clouds are the European recession and rising tensions between Saudi Arabia and Iran. And I will go into detail about both in tomorrow’s Growth Investor October Monthly Issue. Not only will we discuss why these are dark clouds, but I’ll also explain the silver lining.
I’ll give you a hint now: The U.S. remains an oasis.
This is definitely a Growth Investor Monthly Issue you’re going to want to take the time to read. You see, there’s no real reason to be scared in October. It’s really just the media doing its best to scare investors. I don’t want you to panic, which is why I take time in tomorrow’s October Monthly Issue to address investors’ biggest concerns.
And, as I said, I am so bullish on the market that I will also be releasing two new buys. I expect both do to well in October (and beyond!), so now is the perfect time to buy these companies.
And if you have more money to invest – even better! I’m also going to release my Top 5 Stocks List, which are great stocks to park your money in, too. These are the stocks that are heating up, are trading at the most attractive prices and have strong momentum on their side.
So, if you haven’t already, sign up for Growth Investor here, so you can tune out the noise from the talking heads and focus on what’s really important: growing your wealth.