If you didn’t like the way the stock markets performed in September, I have some encouraging news for you – if the historical averages hold, the last quarter of the year should be somewhat better.
New York-based Yardeni Research has compiled data showing the average monthly performance of the S&P 500 Index dating back to 1928. It confirms that September has been the worst month for the U.S. market, by far, with an average loss of -1 per cent over that period. April is a distant second at -0.2 per cent.
This latest September was below normal, with the S&P dropping -2.6 per cent. Our own S&P/TSX Composite Index was even worse, losing 4 per cent and the damage was only limited by a big 2.1 per cent rally on Sept. 30.
Is the worst over?
But if averages mean anything, the worst should be over for this year. Yardeni’s figures show that October, November, and December have all been winners over the 87-year period, although October is usually a highly volatile month. And, in fact, October ended with broad monthly gains in most every major world stock market.
Of course averages are only that – just because a river has an average depth of two feet doesn’t mean you can’t fall into an eight-foot hole and drown. So take them for what they’re worth – historical patterns and nothing more.
Still, the numbers are intriguing. According to the Yardeni research, on average October shows a modest rally from the September losses, with an average gain of 0.4 per cent. The momentum picks up in November, with an average advance of 0.7 per cent and reaches a peak of +1.4 per cent in December, thanks to the traditional Santa Claus rally. The buying pattern carries on into January (+1.2 per cent) before slipping back to negative territory in February.
If these patterns hold, we should see some confidence return to the markets in the coming weeks. Still, these are volatile and uncertain times when nothing is clearly predictable.
Outlook still cloudy
That’s especially true here in Canada. I’d like to be able to predict a year-end rebound in the TSX, but there’s little on which to base any such hope. The energy sector remains stuck in the low oil price morass, and until that situation changes most companies in the energy business are going to be in survival mode. The only factor that could alter the equation in specific cases would be an acquisition binge by some of the larger players looking to buy quality assets at deep discount prices. That could also happen in the mining sector, although there are fewer obvious aquisitors to be found.
The rest of the market will likely continue to wobble. While the financial sector has rallied somewhat from the pummelling it took over the summer months, the yields of the big banks are still looking attractive at current levels. Bank of Montreal (TSX: BMO), for example, yields over 5 per cent, and Royal Bank of Canada (TSXY RY) yields 4.0 per cent at recent prices.
The election of a majority Liberal government also helped boost markets through October, as investors generally prefer the stability of a majority to the uncertainty of a minority government.
Action now
Still, despite the averages, there’s plenty of uncertainty overhanging the market. Last week’s Federal Reserve interest rate non-announcement is a good case in point (will they or won’t they raise rates in December?). I suggest the best approach for anyone considering Canadian stocks right now is to limit new purchases to quality securities that are trading at attractive multiples. Wall Street offers better opportunities because it is more diversified, but you’ll still need to be highly selective.
Buying the indexes at this juncture is risky, unless you’re in for the long term. Cash is king in these conditions. If you have some, deploy it judiciously.
Courtesy Fundata Canada Inc. © 2015.Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder andThe Income Investor newsletters, available through his Building Wealth.ca website. This article is not intended as personalized advice.
