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The September of My Years

Markets went sideways this week as investors look to economic data for the next move.  We’ve entered a transition period between summer and fall during which vacations come to an end, kids head back to school, and investors refocus on the stock market.  With little news, either in terms of fiscal policy, i.e. the infrastructure bill and tax related measures or monetary policy, i.e. interest rates and the taper, investors are left waiting for the next development.  I don’t think we’ll have to wait long, as many of these issues are coming up against a soft deadline at the end of this month, in terms of the national debt ceiling, as well as a need to move forward about the negotiations that will inevitably be politically charged and contentious.  I would expect by mid-October we’ll know more, the proposals will have been scaled back, and Congress will be a little closer to passing the next and possibly last big legislation for some time.

As for the stock market, September is ordinarily thought of as a “bad” month followed closely by May.  The original explanation behind stock market seasonality was the annual flow of capital between American farmers and the banking/financial system.  This, of course, is no longer relevant today.  However, the phenomenon persists today leading some to look for correlations.  In the modern era, defined as 1980 to present, there have been six years during which the returns were greater than one standard deviation above the average of 6.3%.  During those years, the average return in September was -0.70%.  Given the returns this year, this should not be cause for concern.  Nonetheless, it might help explain the sluggish nature of the market right now.

In other news, I came across an interesting look back between September 2011 and today.  Bespoke Investment Group put together a chart comparing the largest companies by market cap then and now.  Interestingly, the market cap of the S&P 500 has increased 270% since 2011 while that of the four largest companies has increased 673%.  Among the top names then and now are Apple, Microsoft, and Google.  However, there has been an interesting shift as more traditional companies, i.e. Walmart, Exxon Mobil, Chevron, and AT&T among many others have fallen off the list.  Their replacements include newer companies you might recognize like Amazon, Nvidia, Visa, Home Depot, Disney, PayPal, and Tesla.  The march of time is relentless and it seems while many of the companies from ten years ago are still doing well, they’ve been superseded by young upstarts that either figured out a better way, or pushed into new territory altogether.  This is worth thinking about.

The economic data continues to run hot, which is both good and bad depending on how you look at it.  Inflation has likely peaked, as supply chains slowly come back and stimulus comes to an end.  However, parts of the economy, namely housing, remain overheated as is the rental market.  Food prices also are considerably higher and could remain so for an extended period.  And while workers are returning, they are doing so slowly and in much more picky fashion having saved up enough to not jump at the first job that comes along.  Eventually these issues will work themselves out, but it could take many months before things normalize and likely won’t happen until later in 2022.

One interesting development, that I’ll only touch on briefly, is that supply chains which moved out of China last year are now moving back. This trend started during the trade war years of the Trump administration where many manufacturers moved production to diversify and avoid tariffs. Many of them moved their facilities to Vietnam, however, Vietnamese authorities this week announced an extension of restrictions due to COVID putting many companies at a standstill (again). Companies such as Nike, RH, Under Armour, Lululemon and others are now reconsidering their move with some laying the groundwork to return to China. This reminds me of the famous quote from The Godfather, “Just when I thought I was out, they pull me back in.”

In closing, I came across an interesting study which questions obesity and its cause.  While not completely groundbreaking, it does give one food for thought (pun intended).  The consensus is that overeating leads to excess weight.  However, a team of scientists now believe it’s more a matter of what you eat rather than how much you eat.  The study finds that processed foods and rapidly digestible carbohydrates may be what’s really behind society’s growing waste line.  I’m not a doctor and will not comment on the merits of the study.  However, this study does correlate well with the rise in processed foods and our national health crisis.  Coincidence?  Maybe, but now you know.  If you want to read more about this study, you can find synopsis of the study here.

Bruce J. Mason, MBA