Seasonality of Returns

Although we caution investors over investing purely on seasonal trends, we do believe seasonality can serve as a supplemental factor to fundamentals of long-term investing such as earnings, the multiple paid for earnings, interest rates, growth rates, etc….

September, October, November, December, and January

September, historically the worst month of the year in the stock market, lived up to its reputation and was quite ugly.  October is known to be choppy but over time has been positive.  The sweet spot in the markets historically has been November through January.  Those three months have historically returned consecutive positive months of the year.  Of course, there are plenty of exceptions to the rule. 

Many investors were glad to see September behind us with a new emphasis on the future.  But, today was an ugly day, as well.  One might ask Why?

What Causes Daily Volatility?

It is often difficult to pinpoint the precise reason the market moves one direction or another on a daily basis.  This might be due to numerous contributing factors and complexities.  Furthermore, differing factors interact with one another, sometimes magnifying and masking the underlying reasons, thus making it even murkier when attempting to understand cause and effect.

Today’s Market 

Today, there were numerous factors playing off one another.  But it seems at the root of today’s pullback was a government report released this morning.  The JOLTS report (Job Openings and Labor Turnover Survey) indicated there were more job openings than originally forecasted, reversing the decline of new available positions over the last few months.  In other words, perhaps the GDPNow estimate is accurately suggesting the economy is growing faster than many economists anticipated.  If you ask us, this sounds like a nice problem to have!  So, why did the market drop today?

Without focusing on all the side moves as a result of this report, such as interest rates, and the US dollar, the most pressing short-term issue involves the Federal Reserve and potential implications for interest rates.  Chairman Powell clearly stated that one of the key drivers to the FOMC’s decision making is employment and specifically the number of job openings.  Now all eyes will be on Friday’s Non-Farm Payroll report which will show the number of new jobs created. 

Political and Geo-Political Issues

We likely sound like a broken record regarding our focus on fundamentals – the news and not the noise.  With the government shutdown averted – at least kicked down the road, some will now focus on political chaos in Washington, DC.  And, of course, the market may well have been anticipating the unprecedented removal of the Speaker of the House and associated turmoil.  After all, investors hate uncertainty.

Earnings

To the degree these issues impact earnings, they are relevant to long-term market performance.  If not impactful long term, then likely simply noise when it comes to investing.  Some of these recent actions and reports could impact earnings.  But for now, earnings appear to be on the rise. Street consensus suggests some 12 – 13% increase in earnings over the next 12 months per FactSet.  Should this come to fruition, better times are likely ahead for equity investors.