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By John Heinzl
The Globe And Mail
Report on Business
Friday, September 1, 2006 |
We don't mean to alarm anyone but -- cue the spine-tingling organ music, please -- it's September.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “If capital protection is more important to you now than growth of capital, then you might get a little more conservative.”
October may garner all the headlines as a brutal month for investors, given its proclivity for stock market crashes. But if you crunch the numbers, the worst month for stocks is actually September.
Since 1950, the Dow Jones industrial average has fallen an average of 1.1 per cent in September, ranking it dead last, according to the Stock Trader's Almanac. (For the record, the Dow has risen an average of 0.6 per cent in October, placing that month near the middle of the pack).
In Canada, September has also been a cruel month for investors. Over the past 20 years, Canada's benchmark stock index has fallen 13 times in September and risen just seven, for an average 1.34-per-cent decline.
There are a few explanations for September's weakness, says Oakville, Ont.-based technical analyst Don Vialoux.
One is that the end of summer and beginning of fall is when many portfolio managers sell their losing stocks. "The big guys come back from the Hamptons and they look at their portfolios and decide to do some house cleaning," he says.
Another factor is earnings estimate revisions. By the time the third quarter is coming to an end, many Wall Street analysts realize that the earnings forecasts they issued at the start of the year were too optimistic. So they start cutting their estimates, which in turn sends stocks down.
A third reason -- and one that could come into play this year -- is U.S. presidential and mid-term elections. The mud-slinging that characterizes most campaigns often has an unsettling effect on investors, because it focuses their attention on everything that has -- or could -- go wrong.
And with Iraq, Iran, high energy prices and a suddenly ice-cold housing market all weighing on the consumer's psyche, this year's mid-term elections in November will not lack for negative themes.
Mr. Vialoux's advice?
"Be very cautious going into September and October," he says. many investors are doing just that, judging by the rotation away from economically-sensitive stocks into defensive sectors such as pharmaceuticals, utilities and consumer staples.
"The big question now is are we into a hard-landing or a soft-landing, and the jury is still out on that," he says. "
"Hopefully it's a soft landing and there won't be too much of a hit on the equity markets. On the other hand, if it's a hard landing, look out."
The good news is that a stock market selloff this fall could present a buying opportunity. Historically, markets in both Canada and the United States have bottomed toward the end of mid-term election years, before rebounding to produce strong gains, he says.
But with the U.S. housing market throwing off disturbing signals and some economists warning of a possible recession, some money managers say now is a good time take some chips off the table -- especially considering September's lousy track record.
Adrian Mastracci, president of KCM Wealth Management in Vancouver, is advising clients with heavy exposure to stocks to move some of their money into fixed-income investments, at least until the economic picture in the United States becomes clearer.
"If capital protection is more important to you now than growth of capital, then you might get a little more conservative," he says.
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