Stock Picker: How to Avoid the September Slump

Jeffrey Hirsch, editor at Stock Traders Almanac, and David Lutz, managing director at Stifel Nicolaus, shared their insights on whether the rally will continue into September, a historically bad month for the markets—and how investors should prepare their portfolios.

“September is when we start getting the third-quarter profit warnings coming out in mass, which is going to raise a lot of fears about any kind of recovery or visibility going into 2010,” Lutz told CNBC.

“And on that visibility, Wall Street hates uncertainty.”

In addition, Lutz said Congress comes back into session in the first week of September and will deal with health care and energy legislation, which may cause more market uncertainty.

More Market Insights:

Buy food stocks,” recommended Lutz. In particular, he likesGeneral Mills .

“This group historically outperforms the S&P by over 300 basis points from September to year-end. Especially in years when it’s underperformed coming into September. Food stocks have underperformed the S&P’s move since the beginning of the year pretty drastically.”

Lutz also suggested investors look into the Federal Government IT sector.

“Their fiscal year ends on September 30, so there’s going to be a lot of activity going into that date,” he said. “The group is usually a defensive play anyway if we get some kind of pullback. We think you should be buyingSaic.”

In the meantime, Hirsch said to brace for a pullback in September and told investors to watch the so-called triple witching.

Investor Intelligence:

“All the big rallies after September have come after a decline,” he said.

“We’ve had a good summer, so I can see us easily selling back a little bit and I would watch for the second part of September—the week after triple witching has been treacherous over the years.”

Hirsch said it is best to wait for a pullback and all of October’s economic activities to kick in before entering the markets.


No immediate information was available for Hirsch or Lutz.

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General Mills Competes With:



Kraft Foods