Making Money Alert
Will September Live Up to Its Rep?
09/07/2006
When it comes to the stock market, not all months are created equal.
In fact, some months have a downright nasty reputation in terms of investor returns. Such is the case with the month of September. In fact, September has the rep of being the worst month for investor returns. Just look at the data to find that this bad reputation is well deserved.
Since 1970, the S&P 500 Index has returned an average of -1% for the month of September. During the past 35 years, September is the only month to have an average return in the red. Amazingly, the month of September has been in negative territory 60% of the time since 1970.
I bring this up because when it comes to investing, this pattern of a tough September is one investors need to understand. The question for us right now is will September live up to its reputation? My thesis is that the market is headed for another year of September blues, or in this case, September red ink. However, there are several things that could help this market buck the historical trend.
First, if the Fed were to come out with definitive language that signaled an end to rate hikes, the market may respond with an end-of-the-month rally. Also, if we get some positive news on the earnings, inflation or geopolitical front, that also could fuel some September buying.
The real key is whether this market can break through current resistance levels. That level on the S&P 500 Index is 1325. Yesterday's buying looked like a stepping stone that could have led the S&P 500 through its resistance. But today's sharp selloff was a stark reminder that September's reputation is indeed well deserved. As always, we'll be watching the action closely and letting you know what it all means to you and your money.
Just remember that as we enter this historically tough time for equities, it pays to be prudent and cautious. Now is not the time to go on a buying spree in the market. And if history is any indicator, you might want to wait things out until the October winds begin to blow.
ETF STRATEGIES FOR AN UNCERTAIN MARKET: A RECAP
We recently completed a five-part series on using exchange-traded funds (ETFs) during uncertain markets. Apparently, the series was very popular and I received many e-mails from Alert readers asking me to summarize and recap the basics of each. So, by popular demand, here is a listing and brief overview of each of the ETF Strategies for an Uncertain Market.
PART I -- USING SHORT ETFS
Sometimes the market trends lower. When this happens, the best way to take advantage of the downdraft is by using ETFs that "short" the major indices. Here is a list of some of my favorite bear market ETFs.
PART II -- USING SECTOR FUNDS
I love sector ETFs because they allow you to "pick your spots" as an investor. If there's a general decline in place in the major market averages, you can move your money into areas that aren't affected by the overall trend. And the beauty of using sector ETFs is that they don't just work in a down market, they also work equally well in sideways and bull markets. Here is a table with a few of my favorite sector plays.
PART III -- USING BOND ETFS DURING TOUGH TIMES
One of the best places to be in times of market turmoil is stodgy old bonds. However, you can't be in just any bonds. I am talking here about the safety and performance of U.S. Treasury bonds. Back in the last bear market, there weren't yet any ETFs tied to the fortunes of short-term Treasury bonds. Fortunately, that has changed. We now have the iShares Lehman 1-3 Year Treasury Bond (SHY). This ETF -- with the cute little name of "SHY" -- is a great way to play things when times are tough. It's also a great way for income investors to get better than a 4% yield on their money.
My other favorite bond ETF is the iShares Lehman 20+ Year Treasury Bond (TLT). Since about mid-May, long-term Treasury bonds have been in an uptrend. That ascent has accelerated since the beginning of July. Long-term Treasury bonds have proven themselves time and time again as stalwart investments during rocky times for stocks, and the most recent bear market is no exception.
PART IV -- CAPITALIZING ON COMMODITIES
Before commodities ETFs hit the market, investors who wanted to participate in bull markets in gold, silver, oil or other commodities had to venture into the treacherous waters of the futures markets. It was not a good place to be unless you were a very experienced trader. Fortunately, that has all changed thanks to the following commodities ETFs:
PART V -- USING INDEX ETFS TO "BUY THE MARKET"
One of the best things about ETFs is that they allow you to get exposure to various parts of the market, including the major market indices. ETFs started becoming popular during the 1990s, when investors who wanted exposure to the tech sector realized that it was a lot easier, and a lot cheaper, to buy the Nasdaq 100 via the QQQQ than it was to buy into a mutual fund offering the same exposure.
Another great way to "buy the market" using ETFs is by getting exposure to perhaps the best measure of overall market strength, the S&P 500 Index. Through the S&P 500 SPDRs (SPY), commonly know as "spiders," investors can basically own the 500-largest publicly traded companies in one easy, convenient and inexpensive ETF.
For investors who like to expand their exposure to companies with a little less bulk than just the largest 100 Nasdaq stocks or the 500 biggest public companies, there's an ETF tailor-made for you. It's the iShares Russell 2000 Index (IWM). This ETF allows you to buy into the small-capitalization sector of the U.S. equity market.
Of course, all of these five strategies on how to use ETFs in an uncertain market can be found throughout both my Successful Investing and ETF Trader advisory services. If you'd like to find out more about how we employ these tools in our investment arsenal, I invite you to click on the links below.
Click Here to Learn More About Successful Investing
Click Here to Learn More About ETF Trader
WISDOM FROM CENTER COURT
"The scoreboard said I lost today, but what the scoreboard doesn't say is what it is I've found. Over the last 21 years, I've found loyalty. You have pulled for me on the court and also in life. I have found inspiration. You have willed me to succeed sometimes even in my lowest moments."
—Andre Agassi
This week marked the end of a tennis legend's career. But in my opinion, the legacy of Andre Agassi won't be his illustrious play on the court. What I think he showed the world is what's possible when heart, mind and spirit come together in pursuit of a goal. I think all of us would be well served if we adopted a little of Andre's passion into our own lives.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.