Will September Once Again Disappoint?

Every year I say September hits like a thunderous jolt on many levels. It is back to school for many and the return to work for most of us as we race toward the end of the year. That means revisiting prior plans and using the sailing term tacking back on course to make sure we land where we want to be. That’s true in business and with investing.

Looking at the year-to-date returns for the S&P 500 and other major market indices, 2013 has been a banner year. The S&P 500 alone is up more than 18% as I write to you even though it has pulled back some from its Aug. 2 peak. So far in September, that index is up more than 3% as the market climbed higher for seven of the last eight consecutive days. As any student of investing and the stock markets knows, September tends to be one of the worst-performing months during the year. Looking at the data, over the 2000-2012 period, the S&P 500 has averaged a return of -1.4% for the month of September.

You’re probably thinking to yourself — the market’s up this September and it’s bucking the historical average… are we due for a reversal?

When I recommend a stock or an exchange-traded fund (ETF) in my investment newsletter PowerTrend Profits, I need to see significant upside — at least 25% on a net basis. In my trading service, ETF PowerTrader, which uses a combination of ETFs, individual stocks and call options, my target is to double your money. In order to identify those companies and securities that will help achieve those returns, I tend to use a triple-filter process to weed out those that won’t make the cut. It is that use of several perspectives that helps me avoid pitfalls and stay on the right track.

When looking at what’s ahead for the stock market, I find a similar approach works best.

On the technical front, the S&P 500 isn’t overbought at current levels and basic technical analysis indicates the market is in an uptrend at least for the near term. We have to remember, however, that technical analysis hinges on the rear-view mirror for its data. As a fundamental investor, I’m always looking to identify those sign posts and other indicators for what lies ahead.

While we’re in a holding pattern as it relates to a potential military conflict with Syria, that’s not the only potential roadblock ahead for the stock market. This week, the House Republican leaders postponed a vote that would have approved the financing of the government through December. A Friday memo to GOP members by Majority Leader Eric Cantor (R-VA) says “the House will act to prevent a default on our obligations before” the mid-October deadline the Obama administration has established. “House Republicans,” he says, “will demand fiscal reforms and pro-growth policies which put us on a path to balance in ten years in exchange for another increase in the debt limit.” Given the way that Washington has treated prior debt-ceiling negotiations, I expect a lot of bluster and finger pointing in the coming days that could rattle the stock market.

As that is heating up, the Federal Reserve will hold its next Federal Open Market Committee meeting next week on Sept. 17-18. The stock market will be bracing to see if the Fed starts to taper its economic-stimulus spending and, if so, to what degree. For my money, following that disappointing August Employment Report, which fell short on nearly every level and every metric, the Fed is likely to taper modestly if at all. That view is shored up by the recent Beige Book report, which collects regional Federal Reserve Bank data. The Sept. 4 report found “that national economic activity continued to expand at a modest to moderate pace during the reporting period of early July through late August.”

Do I think the Fed will announce a tapering next week? I do, but I also think it will be modest. Remember, the Fed is buying bonds to the tune of $85 billion a month. A modest cut to $70-$75 billion or so near-term should not rock the markets. But it should succeed in sending a message that the Fed is serious about getting back to a more normalized monetary policy. If the Fed tapers much more than that, then I suspect interest rates will climb and that could take some of the wind out of the stock market in the short-term.

On the economic side of the equation, the U.S. economy continues to move forward. However, as subscribers to both PowerTrend Profits and ETF PowerTrader know, I remain concerned with the consumer. The average household has seen its income dip during the last four years and both disposable income and savings rate have been pressured. What looks like a ray of hope for the global economy is the pickup in the euro zone and in China, which could result in a sentiment shift and rotation into those stocks and ETFs with significant exposure to those areas.

Despite these potential disruptions, we know that

• people are shifting their lives more and more online
• security is becoming a bigger concern
• people are suffering from obesity and other diseases
• disposable income is climbing in the emerging markets and
• soon a number of technologies will hit that will transform the way we pay for things and affect our lives even more.

In other words, while there may be some bumps in the road, PowerTrend investing identifies the big changes that are occurring around us no matter what the economy or Washington is doing.

That’s how we roll to big profits like Starbucks (SBUX), Facebook (FB), II-VI (IIVI) and others.

Latest Special Reports
As a courtesy, I want to bring your attention to my three latest special reports, Eight “PowerTrends” for the Next Decade of Wealth, Power Plays: Today’s 8 Most Urgent “PowerTrend” Wealth Picks and Double Your Money by Year’s End with the Company Comcast, Verizon and Cisco Can’t Do Without. Each of these FREE reports gives excellent investment information on a key segment of the market.

In addition, take a look at the recently updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. All of these special reports are accessible now to subscribers of PowerTrend Profits on my website. To access the website or to subscribe now, click here.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearances

• Each Friday, I sum up the week and talk about what to expect in the week ahead with America’s Morning News. Click here to find a radio station near you that carries the program.
• Also each Friday, I join The Andrea Tantaros Show to dissect the latest economic and stock market news with Andrea and her listeners. You can listen to that discussion by clicking here.