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September Stock Swan Song?


Oh it's a long, long while from May to December,
But the days grow short when you reach September,
When the autumn weather turns the leaves to flame,
One hasn't got time for the waiting game.
"September Song" by Kurt Weil and Maxwell Anderson   as popularized by Frank Sinatra
There is a strong hint of autumn in the air as traders return to their desks this morning. The chilly weather is a welcome relief from the hot and humid days of August, yet there are worries that this first day of September may also mark something of an end to our torrid summer romance with stocks. Many observers expect to see a market correction in the coming weeks, some out of conviction that the rally has taken market valuations to unsustainable levels, others out of an expectation that seasonal selling pressures will prompt a decline. The wild card remains the potential infusion of large levels of sidelined cash that may occur if impatient money managers continue to suffer from performance anxiety. Until someone invents a little blue pill designed to lift portfolio returns, managers will continue to feel pressured to deliver the goods and their actions may determine the market direction for the next few weeks.
A catalyst will be needed to spur a shift one way or another and it's hard to know just where it will come from. The market, after embracing even mildly good news in mid-summer, has shrugged off positive data on jobs and economic growth in recent sessions while also exhibiting an ability to ignore the sort of news that would have sent it into a tailspin last spring (think about the Chinese bear market). Investors will be monitoring data this week, but with the economy at something of a slack tide, it is unlikely that we will be hearing anything that is market moving.
So, will the September Song turn out to be a swan song for the rally? As the Chairman of the Board sang, “Oh, the days dwindle down to a precious few”. Managers may be hot to trot if they sense that economic data won’t turn negative, but September is often a month in which companies issue profit warnings. If we see a flurry of corporate executives attempting to dash our ardor with a cold shower of lowered expectations, equity markets could turn cold. Traders may wish to keep a sweater handy.

Disclosure: No Positions