The sun and fun of summertime—and the 8 percent gain in stock prices—is set to give way to the more intense time of September.
The beginning of autumn is traditionally a time when volume comes back into the market and hard-core investors get down to business.
"In September it's back-to-school not just for students but investors, too," says Lawrence Creatura, portfolio manager and equity market strategist at Federated Clover Capital Advisors of Rochester, N.Y. "After a summer at half-speed a lot of people look at the data with a more critical eye, and what they see can sometimes be sobering."
For bullish investors, the past five months have been a day at the beach. Stock prices have jumped about 50 percent off the mid-March lows, and the momentum has continued through the summer, though August has been a bit slower than the preceding months.
But volume has been beyond anemic.
Total dollar volume in July 2009 was 30 percent less than the previous two years and about 75 percent less than in 2006. Days of advancing volume have beaten those with declining volume by a 10 to 1 count, suggesting a skewed picture and a sellers' strike rather than a true rush of buyers.
Thursday's narrow stock gains, for instance, came even as the market posted more than 50 new highs against just one new low.
Analysts trying to discern whether the rally is real hope more volume in September can help create increased certainty about the market's direction. The month will feature an options expiration that some analysts believe will yield significant information about investor sentiment.
"We've rallied big on very light volume," Joe Kinahan, strategist of Thinkorswim, told CNBC. "We should start to see a truer picture of what people are really thinking about the economy as they gear up to year end. ... The September expiration, the next one, will give us a truer picture of the economy."
Primary on investors' agenda are two items: Stabilization of housing and jobs, as well as a move beyond what analysts call the "second derivative," or the economy not merely showing an easing of negativity but real progress.
Should both events come together—and there's a considerable level of confidence at least that the worst has passed—the return from summer vacation could be a happy one for the markets.
"You come into September and you get some pronouncements for Q3 earnings and oftentime that's the moment where the bloom comes off the rose," Creatura says. "We see improvement for the second-half story."
The expectation of economic improvement is the good news for the post-summer crowd.
The bad news is that the bears will have history on their side.
September is the worst month for stocks, with the Standard & Poor's 500 down 1.3 percent since 1928. And October is often, as Creatura describes it, "between a hurricane and a root canal."
That has some advisors expecting more volatility in the coming months, after a summertime in which the Chicago Board Options Exchange's Volatility Index beat a hasty retreat from its historic highs.
More good news, though: That could set up nicely for investors who are paying attention.
"I'm not saying the market is going to have a big pullback, but this is the time of the year to be on the lookout for" big price swings, says Peter Miralles, president of Atlanta Wealth Consultants. "At this point it's just a buying opportunity."
Miralles sees another new trend emerging as summer gives way: The small-cap leadership that traditionally vanquishes a bear market, and has lived up to form this year, will give way to mid- and large-cap leadership as the market bulls ahead.
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"The volume will resolve itself down the road," he says. "The economy is stabilizing. I think everybody knows that."
Yet the market faces stumbling blocks along the way.
Analysts continue to wait for a healthy correction that would send the major averages backtracking about 10 percent. The strong level of market confidence that has prevented the correction from taking place is being seen as a contrarian bearish sign.
That has led to a variety of warnings from market pros for investors to stay cautious and play at least some defense. After turning heavily toward safety as the market slumped into March, investors went from holding 45 percent cash then to 25 percent cash by July; stock and stock funds holdings went from 41 percent in March to 51 percent in July, according to data from the American Association of Individual Investors.
"I do believe a correction here is quite possible and might be healthy, especially if it brings back some of the skepticism and pessimism that helped launch the rally off the March lows," Liz Ann Sonders, chief investment strategist at Charles Schwab, wrote in an analysis. "But, no one needs to be a hero in the meantime."
Indeed, there remains the possibility that if the market doesn't get the news it wants in September but still isn't prepared for a selloff, the month could be a wash.
"September may be shaping up as a nothing month, where you have a balance of forces," says Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnati. "It seems that you've almost got a scenario where the bulls and bears are in equal states of confusion as to what might happen with stocks and with the economy."
Despite his fairly bullish stance, Creatura says he is "as disoriented as the next guy" when it comes to anticipating market moves.
Safe moves at this point, he says, include investments in energy, particularly natural gas, and health care, especially contract research organizations.
Other investors will be playing it even safer, as analysts look to see just what September portends for the longer-term stocks outlook.
"We hit the bottom in March. Fear was rampant and I think people are feeling more confident now," says Jill Hollup, director of investments at Lowenberg Wealth Management Group in Austin, Texas. "But they're not going to forget what happened in 2008 anytime soon."