Rough start to September? Start buying
Welcome to September. After watching indices around the world go negative, it was our turn here in New York with the Dow Jones Industrial Average falling more than 400 points.
I believe this is just a harbinger of the next 29 days of the month. The problems that were with us in August are following us into September:
China: Things are slowing down in China, with large-cap stocks sliding as much as 5 percent in Tuesday trading before surging into positive territory as markets closed in Asia. However, like in August, the surge was not based on the public being enamored with stocks as much as it was with the Chinese government, through its financial subsidiaries, stepping in and supporting the market. Expect to see this market manipulation continue for some time to come. With Chinese small-cap stocks, it's a different story. Without government intervention, they took a savage beating. Wednesday could be a big day for markets in China. The nation will be commemorating the end of World War II. It will also be the last trading day of the week (Chinese markets are closed Thursday and Friday for the holiday.) Because it's such a patriotic holiday we could see a large push to close markets in the black.
Oil: Last month was a tough month for oil traders. And this month is starting off like last month ended — with continuing volatility. China's manufacturing numbers pointed to a continued slowdown in the second biggest economy in the world, but it's not just China that is exerting undue pressure. Iran will be back online as international sanctions come to an end (about 800,000 to 1 million barrels a day ) adding to a worldwide glut that saw oil prices fall from $100 a barrel to below $50 a barrel in six months. But it also tells us that the world, not just China, is starting to slow down.
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The Federal Reserve: For U.S. traders, the looming question remains will they or won't they. Wall Street hates uncertainty and just in the last week alone we continued to get mixed reading from the Federal Reserve on when it will begin to raise interest rates. My personal opinion is they have backed themselves into a corner. For months they have been telling markets they had to see better labor numbers, better gross domestic product, all of which we saw last month. If Friday's BIG job number comes in-line or better than expected, they must raise or the markets will take that as a sign things are worse than they are letting on. Add to the mix September itself, historically a bad month for stocks. It's a month where investors sell underperforming positions to get ready for the fourth quarter, and start to take some profits. This is one of the reasons September is the only month of the year the S&P, on average, closes the month on the negative side, historically averaging a 0.7-percent decline. And it's not just our market feeling pain — 23 nations around the globe are trending down.
But with all this uncertainty and confusing mixed messages coming out of the Fed and a world stumbling to find financial direction, remember this: It's not going to be the end of the world. Yes, it will be very volatile. I have been on the floor of the New York Stock Exchange for 35 years now. In the crash of '87, the market lost 25 percent in one day. That was it, we were done. Time to sell apples, and I don't mean the stock. When Bear Stearns and Lehman Brothers imploded, that was it, shut the lights off and go home. But you know what? We are still here. In four months it will be New Year's Day. We shall still have problems, but China will not be out of business. No matter what the Fed does, we, as a nation, will still be growing (albeit slowly). And it will be cold outside. So, for most of the developed world, that will mean heating with oil.
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So, I see this as great time to take advantage of some discounts in stocks. Some of my best ever purchases in blue chips have come in September. If you have been doing your due diligence and waiting and watching some favorite stock to buy at that right price, September could be that month. Here are two industries I've been watching that I think will be worth picking up on:
Tech: Although beaten up the the last few weeks, it's still one of the really strong groups with a lot of growth potential, not only to finish this year strong, but going into next year.
Biotech: The sector has, like the market, had a lot of volatility this year. With biotech, expect a wild ride, but one that can end very profitably.
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The world may, indeed, be slowing down, but America is still the best place to park your money. If you step back and take a look at the rest of the planet, you will see Europe starting to come under enormous pressures, and not just financial ones. Immigration may be the straw that breaks the camel's back. We could see some countries leave the European Union over this. South America is falling into recession. And of course, we've gone through China's problems. By default, the U.S. still growing (ever so slowly) and at least you know the reported numbers from companies and the government are real.
Commentary by Alan Valdes, director of floor trading, DME Securities.