September Seasonality Update

Well. Seasonality is back. Everyone in the financial media
has been talking about September seasonal weakness lately. And here we are in
September and the market has sold off the 5% or so we projected last month. And
it did so in the notoriously treacherous week after September quarterly options
and futures expiration.

Then as expected traders and fund managers bought the 5% dip
as they have throughout this bull market rally with the blessing of the Federal
Reserve’s continuing dovish tone and accommodative policy that they reinforced
at the conclusion of yesterday’s FOMC meeting.

We do not expect stocks to succumb to the October curse this
year. That doesn’t rule out some downside disturbance, but we do not foresee an
impending crash, massacre or big selloff of the sort that have given October
it’s dubious reputation as the jinx month.

Many of the same geopolitical, political, fundamental and
technical headwinds we highlighted last month remain, as well as some others, so
another 5% or so pullback is quite likely as Wall Street still may suffer from
chronic “Octoberphobia.”

We’ve been doing this for decades and this pullback was
prototypical end of Q3 window dressing and institutional selling. Several
factors weighed on the markets, but most had been there all year. So why did
the market selling off this month? Seasonality.

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