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Equity Markets to Track Higher in September Before Election Correction


The stock market continues to track the typical election year chart pattern.

Peter Drucker was a writer, consultant, and teacher who was deemed the father of modern management theory. His groundbreaking work turned management theory into a serious discipline, and he influenced or created nearly every facet of its application. He coined such terms as the "knowledge worker," which plays to the intangible capital theme often discussed in these missives. One bòn mót he once related was:

The most enduring lesson I've ever learned came from an old janitor at New York University, which had completed a new magnificent graduate-school building that had no windows on the first nine stories. We moved in; and, you know there's always a short, brutal heat wave in New York at the end of April. The temperature went from 80 to 90 to 100; and everybody, the women included, stripped down to the barest essentials. It continued to get hotter and my patience wore out! I went down to hunt-up the janitor and scream at him. Way down in the third basement I found an old toothless man and yelled at him, "Can't you read a thermometer?" He looked back at me and said, "Mister, if I could read a thermometer what would I be doing as a janitor?!"

Indeed, the janitor's job was to watch the calendar because in New York you heated the building until May 15 and then you turned on the air conditioner. The janitor merely followed the orders he had been given – no questions asked!

In the stock market, many mavens also follow the calendar ... you simply play the summer rally long; then around Labor Day, you sell because of the "look out for October" history-haunts. They read the calendar, not the temperature, of the markets.

Unfortunately, many investors failed to participate in this summer's rally, conditioned by the shared experience of the past two summers. Indeed, for the last two years, the S&P 500 (SPX) has topped out in the spring and then slid into the summer doldrums. Accordingly, many professional investors were too timid to believe the June 4 low was the daily, and intermediate, term cycle-low, which launched this year's summer rally. Now they are faced with performance anxiety as the end of the third quarter looms. Yet investors are still skeptical, voicing concerns about Euroquake, a slowing China, our dysfunctional government, the fiscal cliff, etc. I have addressed most of these concerns in prior missives.

Nevertheless, the single most reoccurring "knock" I have heard since the bull market began in March 2009 is that the volume has been extremely low by historical standards. In theory, that "knock" makes sense, but followers of said theory have missed out on the ninth strongest Bull Run in the history of the S&P 500.

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No positions in stocks mentioned.
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