After Labor Day the markets will enter the treacherous September/October time period. Since 1950, the month of September has produced a decline for all of the major indices. October is a month known for crashes. The reason why September has historically bad for is because markets tend to drift up in August due to most of the professional investors being on vacation. The high for 1929, was September 1st. October’s volatility is because it’s the month for the demand for credit being at its highest. The credit lines that are tapped out by retailers for Christmas season inventories tends to result in interest rate volatility. The S&P 500 and NASDAQ reaching new all-time highs on August 29, 2018 does not bode well September and October.
Below are my gleanings from an article entitled “As good as it Gets” that was authored by Lance Roberts who is the Chief Portfolio Strategist/Economist for Clarity Financial. The article is highly recommended since it contains proprietary economic metrics that were created by Mr. Roberts which are indicating that both the US economy and markets have peaked.
- There is a danger that the Federal Reserve’s additional hiking of interest rates could throw the economy into a recession. It’s because rate hikes would likely result in the discount rate going to above the yield on the 10-year US government Treasury bond. The proprietary chart below depicts that every time that this has happened since the 1970s the result has been a financial crisis and a sharp market sell off.
- According to Mr. Roberts proprietary Economic Output Composite Index (EOCI) the indicator recently reached its second highest peak on record. Every prior period that the EOCI reached a peak level had been indicative of a peak of the economic cycle. Additionally, the 6-month average of the Leading Economic Index (LEI) which normally leads the EOCI by a couple of months recently turned down. See chart below.
- Staying in the market until a recession has been confirmed is a mistake. The US’ National Bureau of Economic Research (NBER) is the government agency which monitors the US economy for recessions and recoveries. It has a track record for always being late to the party. The 2008/2009 recession was a great example. In December of 2008, after the stock market had declined by 50%, NBER announced that the recession had started in December of 2007. The reason why the NBER always announces recessions and recoveries long after they have begun is because the government releases economic data as soon as it comes in. The problem is that all economic data is revised in the future. Its only after the significantly negative revisions have come in that the government becomes aware that the US is in a recession. The chart below depicts that the NBER has not forecasted a single recession.
- Anticipate that it will take approximately 20 years for the stock market to climb back to its high after the next correction or crash occurs. The charts below provide the details as to why.
To understand how to fully protect assets from crashes and recessions view the “Profit from the Crash” video below. It provides details on a free and simple fail-safe strategy that can be utilized to protect assets.
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