Trading Range

So much for September historically being the market's worst month. Stocks are doing very well, rising in all but one session in September. The S&P 500 is at its highest level in a month.


Why the renewed interest in stocks after the August sell-off? The economic news, while still grim, is not quite as weak as investors anticipated, so being "less bad" is seen as a positive for the economy and in turn corporate profits. Couple that with the $3 trillion on the sidelines receiving next to no yield, and you can see why the market has rallied.


I should caution that when the S&P 500 has reached the upper end of its range (1130) the market has looked strong and at the bottom (1040) it has looked terrible. The market is testing the upper end of the range today. Traders who sold when stocks looked good at the top and bought when the market was weak at the bottom were right to do so. But someday they will be wrong. We think that day will be in October but it happen as early as tomorrow.


The odds favor a break through the upper end. Here's why: The negatives are well known: Debt, deficits, slow growth, unemployment, etc. That's old news and already in the market. Potential positives are not in the market. The $3 trillion on the sidelines can fuel a rally and the $1.7 trillion in cash on corporate books (other than financial institutions) will at some point be put to work. When investors expect the worst then the surprises are positive. In time the positive events that will drive the market higher will become known. We expect emerging market country ETFs and higher yielding U.S. equities will perform best.