Recap 2014-09-02


There were several articles reminding us that on average, September has been the worst month for US stocks. That’s true, but given the instances of large negative sell offs skewing the average, I thought I’d take a look at the Median seasonality. And as the chart below shows, over the last 50 years, the median Sept returns has only been marginally negative – actually flat after accounting for dividends. The worst month in median return terms has actually been July:

What may be somewhat more of a concern is the high ISM print today. Note that historically, ISM (white below) prints above 58 or so have historically coincided with lackluster near term SPX (orange) returns:

Does that mean that we will get weak equity prices over the next few months? Not so fast. It’s worth thinking about why this relationship exists. Very strong manufacturing activity is a negative for equities mainly because of the risk of tighter monetary policy. Historically, ISM (white below) prints near 60 have coincided with high inflation expectations (10y Inflation Breakevens in Orange) – which the Fed has to combat. Note that this is NOT the case currently:


  • PMIs:
  1. ISM jumped to 59 vs 57 exp and 57.1 prev
  2. UK Mfg PMI dropped to 52.5 vs 55.1 exp and 55.4 prev
  3. EU PMI was revised 0.1 lower to 50.7, as a stronger revision for France was offset by weaker revision in Germany. Italy PMI declined to 49.8 vs 51 exp and 51.9 prev
  4. AU Mfg PMI declined to 47.3 vs 50.7 prev
  5. China Mfg PMI declined to 51.1 vs 51.2 exp and 51.7 prev

RBA kept policy rates unchanged as exp. The statement did not contain much in the way of surprises

Building Approvals slowed to 9.4% YoY vs 7.8% exp and 16% prev

  • EU PPI declined to -1.1% YoY as exp
  • Japan CapEx dropped to 3.0% YoY vs 4.1% exp and 7.4% prev
  • Japan wages come in very strong. July total monthly wage was strong, rising 2.6%oya, with a 0.7% gain in the core scheduled earnings and an impressive 7.1% gain in special payments. The 2.6% rise is the fastest pace since January 1997. With a 1.6% increase in the regular employees, the labor income in this survey rose 4.2%, the highest since also January 1997.
  • Draghi’s Jackson Hole speech draws criticism from Merkel and Schaeuble according to Der Spiegel; Germany’s Chancellor and its Finance Minister both called Draghi after the Jackson Hole address and expressed their displeasure w/the contents of the speech. Reuters
  • President Vladimir V. Putin of Russia reportedly told a European official that he could “take Kiev in two weeks” if he wanted to – NYT


  • Wed: EU Services PMI, 2Q GDP, BoC, NZ House Prices, AU Trade Balance, Retail Sales
  • Thu: BoE, ECB, ADP Employment, US Jobless Claims, Services PMI, ISM Non-Mfg
  • Fri: EU GDP, US Employment Canada Employment
  • Mon: China Trade Balance, Japan Eco Watchers Survey, CanadaBuilding Permits, BoJ Minutes, Australia Business Confidence, Home Loans
  • Tue: Canada Housing Starts, Japan Machine Orders