If September is the cruelest month for equities, it will have a way to go to beat August.

The Big Picture 

From the irrational fears of total financial collapse in the wake of Federal Reserve tapering that started the month to the clear and present danger of U.S. involvement in the Syrian civil war closing out the month; investors sold equities and stashed their cash in low-yielding money market funds. 

Gold reversed a 10-month decline, adding 6% in August on safe-haven buying in anticipation of imminent U.S. military engagement in Syria, pouring more gasoline on the fire that is the Mideast.  Crude oil, now trading above $107/bbl, rose for the third consecutive month, faces seasonal headwinds as the summer driving season comes to a close and demand declines. 

For the month of August, the Dow Jones Industrial Average lost 4.45%, the S&P 500 index shed 3.13% while the NASDAQ fell just 1%.  

I, Investor 

Equities should pull back from the brink now that President Obama is asking Congress to approve any action against Syria.  Congress now finds itself in a pickle:  having obstructed everything Obama, will they now go against the powers that placed them in office and give in to the President?  Will they listen to their constituents and resist the drumbeat of war coming from the very entities that profit from war and bankrolled their elections?  Do they love money more than they hate Obama? Oh, what a tangled web we weave. 

In the meantime, we can still kvetch over who will be the next Federal Reserve chair and if and when the punch bowl will be removed from the party table.  Global central bank policies remain very accommodating – easy money abounds. 

Those easy money policies are helping the global economy recover while the US economic recovery is being led by housing, manufacturing, energy and auto sectors.  Corporate earnings remain supportive. 

Relative to other asset classes, stock valuations are cheap.  The movement out of bonds and into cash or stocks is apparent if you look at mutual fund outflow numbers. Investor sentiment, as of last Friday, had turned so bearish (43% bearish vs. 29% bullish) that a relief rally in the wake of no imminent Syria attack is to be expected.  Whether prices can retest the all-time highs made at the beginning of August is the question. 

Data out this week and next may provide the answer.  Tomorrow we get July construction spending and the August manufacturing reading from the Institute of Supply Management (ISM).  Wednesday sees the release of July trade balance data, August vehicle sales and the Fed’s beige book.  Thursday has the usual weekly jobless claims, revisions to second quarter productivity and July factory orders.  Friday brings the August employment situation report.  Non-farm payroll growth is expected to come in around 190,000.  Stronger job growth will reignite fears of immediate Fed tapering. 

The week of September 9th sees Congress return from recess to debate actions on Syria, a pleasant change from naming post offices, agonizing over women’s reproductive rights and voting to repeal, for the umpteenth time, Obamacare.   Midweek we get July wholesale trade numbers; Thursday weekly jobless claims, August import/export prices and Treasury balance.  Next Friday closes out the week with the August producer price index and retail sales, July business sales and inventories and consumer sentiment reading for mid-September. 

With summer vacations over, volume and participation should increase.  Its’ going to be a couple of very interesting weeks.  Get the popcorn ready because this could be great theater.

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