September Market Heading South
The first week after Labor Day is traditionally a time for investors to reassess the financial markets. Unfortunately, that has often meant trouble, as indicated by the fact that September historically has been the worst month for stocks, by a wide margin.
Fear and trepidation have been running much higher than usual concerning a possible swoon this month, particularly in the wake of both the 2008 disaster and the strong market advance of the last six months.
As usual, the markets are confounding expectations and predictions so far. Stocks worldwide have risen steadily if modestly all four days so far this week. What's more, U.S. stocks as well as many foreign equity markets are now trading at 2009 highs.
I've been more optimistic than most about the markets. Yet how could we not be surprised and impressed by the market's refusal to take a well-deserved rest?
Of course, it's way too soon to declare victory for September 2009. October presents challenges too.
Even so, I continue to believe that the huge amount of cash available to invest, sitting on the sidelines generating extremely low income, is a primary factor in global financial markets today. Here in the U.S., money-market funds currently hold almost $3.6 trillion. This is well above the abnormally high level of $2.9 trillion when stocks peaked in October 2007. It's also down less than you might expect from $3.9 trillion in January of this year. So there's an abundance of fuel.
Over time, though, we need more than money burning a hole in our pockets or purses. Last week, the improving corporate earnings likely are necessary for stocks to go much higher from here. I think it will be difficult for earnings to meet current expectations. The major obstacle is the struggling American consumer. Our economy, more than others, depends on consumer spending—70 percent of the total. By either necessity or choice, we're spending less and saving more.
Word came this week that Americans' consumer borrowing in July plunged by a record $21.6 billion from June, the largest monthly decline on record. It was the sixth consecutive month of declining consumer credit. Shrinking credit dampens consumption, which pressures economic growth.
Fear and trepidation have been running much higher than usual concerning a possible swoon this month, particularly in the wake of both the 2008 disaster and the strong market advance of the last six months.
As usual, the markets are confounding expectations and predictions so far. Stocks worldwide have risen steadily if modestly all four days so far this week. What's more, U.S. stocks as well as many foreign equity markets are now trading at 2009 highs.
I've been more optimistic than most about the markets. Yet how could we not be surprised and impressed by the market's refusal to take a well-deserved rest?
Of course, it's way too soon to declare victory for September 2009. October presents challenges too.
Even so, I continue to believe that the huge amount of cash available to invest, sitting on the sidelines generating extremely low income, is a primary factor in global financial markets today. Here in the U.S., money-market funds currently hold almost $3.6 trillion. This is well above the abnormally high level of $2.9 trillion when stocks peaked in October 2007. It's also down less than you might expect from $3.9 trillion in January of this year. So there's an abundance of fuel.
Over time, though, we need more than money burning a hole in our pockets or purses. Last week, the improving corporate earnings likely are necessary for stocks to go much higher from here. I think it will be difficult for earnings to meet current expectations. The major obstacle is the struggling American consumer. Our economy, more than others, depends on consumer spending—70 percent of the total. By either necessity or choice, we're spending less and saving more.
Word came this week that Americans' consumer borrowing in July plunged by a record $21.6 billion from June, the largest monthly decline on record. It was the sixth consecutive month of declining consumer credit. Shrinking credit dampens consumption, which pressures economic growth.
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