By Matthew Carr
Initially posted September 22, 2020 on Revenue Tendencies
Tech is king.
That’s been our mantra for 2020.
And traders have rung the register again and again this yr following that straightforward development.
The Nasdaq soared to new all-time highs.
Particular person standouts, like Zoom Video Communications (Nasdaq: ZM), have surged practically 600% yr thus far.
However a few weeks in the past, the temper started to bitter. And the Nasdaq’s thunderous rally got here to a stumbling finish…Over the course of a few hectic weeks, tech stocks shed 11.5%. The Nasdaq is now up solely 11,000 and is in full-blown correction territory.
This mass reversal in tech has additionally triggered steep declines in each the Dow Jones Industrial Common and the S&P 500 Index.
That is worse than the pullback we noticed in June. We’d have to return to these gloomy days of March for the final time we noticed drops so sharp.
So is that this the start of the top?
Or is that this a possibility to welcome with open arms?
A Trick or a Deal with?
There’s a rhythm to life.
There’s a rhythm to the markets as properly.
For greater than a decade, I’ve been searching for, and benefiting from, these patterns. And what we’re seeing now brings me some consolation.
Many traders feared the dreaded “September swoon” would rear its ugly head. The month has a storied popularity for being scary.
Since 1993, the Dow has been down on the finish of September a complete of 14 occasions. A half-dozen of those came about throughout the stretch from 1999 to 2004.
That was an intense, spooky stretch for traders.
This knowledge paints an unflattering image of the month. Since 1985, September has been the worst month for the Dow.There are solely three months that averaged a unfavourable return over the previous three half a long time. And September’s loss is by far the worst.
The second worst is August. The blue chip index has ended this month decrease seven occasions within the final 11 years. After which there’s June, the lazy, sideways buying and selling month that kicks off what we check with because the “summer lull” – which stretches by way of September.
Summer season formally ends immediately.
This can be a rhythm we see repeated again and again.
And that’s welcoming.
The Election 12 months Blues
A few of you may be questioning, “How can you say that?”
Effectively, in a yr besieged by a pandemic, the quickest 30% decline in market historical past, the quickest bear-to-bull-market restoration ever, the worst financial downturn in a technology and the market deluged by a brand new breed of day merchants, this pullback is definitely an indication of normalcy.
It’s a trusty sea of crimson.
Little question, “2020” will evolve into some type of curse or expletive. Within the not-so-distant future, I think about “100” can be sarcastically changed with “2020.”
It’s been a no-good, rotten, horrible yr that can go away scars on individuals ceaselessly. Simply because the Nice Despair and the Nice Recession did.
However the September swoon was proper on cue. September, traditionally, is the worst-performing month not just for the Dow, but additionally for the Nasdaq and S&P 500.
I may have some dissenters on this view. There may be these claiming, “A 5.5% drop is more than a ‘swoon.’”
However be mindful, that is an election yr – perhaps probably the most divisive in fairly a while – and the markets hate uncertainty.
The Dow has been crimson in September practically each single election yr this millennium.
In 2000, the Dow ended September down 5.07%…
In 2004, it closed the month down 0.88%…
In 2008, the Dow declined 6.02% in September…
In 2012, blue chips posted a acquire of two.64%…
And in 2016, the Dow closed the month down 0.48%.
This yr, stocks are down greater than 5.5%.
In order that’s not outdoors the outer limits of what we’ve seen previously.
It’s been a violent couple of weeks. And extra unstable than we’ve seen in fairly a while.
However September has a popularity for being a month stuffed with declines. And that’s superb. As a result of three of the most effective months traditionally for the market – October, November and December – are on the horizon.
This can be a time to start out compiling your want listing. Consider it as an early vacation current to your self. This pullback offers the chance so as to add shares of nice firms to your portfolio at a reduction.
The markets gained’t be with out turbulence till November. However we use these dips to construct positions and anticipate the subsequent leg greater.
Don’t consider this because the “September swoon,” however as a substitute as an opportunity for a “September stock-up.”
Right here’s to excessive returns,
About Matthew Carr
Matthew’s experience ranges from traditional industries similar to oil and mining to cutting-edge markets like small cap tech, hashish, 3D printing and cloud computing. With nearly twenty years of monetary expertise underneath his belt, Matthew’s knack for locating market developments by no means fails to shock us, which is why we maintain an in depth eye on his free e-letter, Revenue Tendencies.