Market opens lower to start September, historically the worst month on the year for stocks. Well, August was the worst month we’ve seen since the Spring of 2012 and the 8th worst August ever. The S&P fell 6% on the month. It’s still ugly out there. We’ve been preaching defense and have implemented it. The rally to end last week seemed to suck some investors back in. There are a lot of stocks out there that do look attractive after big declines. But the overall environment remains challenging, and our defensive posture remains intact. Global Markets are struggling more, and continue to impact the US. Crude has put together a 3-day session not seen in 25 years. WTI jumped from $38 to $49 in just 3 trading sessions, nearly 30% gains. Short covering was clearly involved. It has been a brutal year for oil and Energy companies. The move off the lows has been impressive to say the least. Are the lows in? Impossible to know. Most likely not. Rig count and production declines combined with growing demand supports the claim. OPEC is talking about a production cut. The correction is incomplete in our estimation. Choppy price action shall continue.
China’s manufacturing sector in the grip of its worst slump in several years. China’s official Purchasing Managers’ Index fell to 49.7 in August from the previous month’s reading of 50.0 – the weakest showing in three years, while the Caixin China manufacturing PMI showed a final reading of 47.3 in August, the lowest since March 2009. The figures detail an even sharper slowdown in the world’s second-largest economy, reinforcing fears that have triggered heavy global market selloffs.
China’s weakness is hurting others in the region. South Korean exports fell by the most in six years in August, bolstering expectations its central bank will cut rates next week to tackle a rapidly darkening outlook. Exports fell 14.7% last month from a year before, dragged down by a heavy slowdown in China and a sharp decline in exports to Europe and Japan. The data is important as it provides the first full trade picture in the region after China’s currency devaluation on August 11.
Economic activity in the US has stalled a bit too. ISM numbers came in weaker for August than expected. The ISM Manufacturing index came in at 51.1, well below the 52.6 estimate. It was 52.7 in July. Construction spending increased by only 0.7% in July. The Fed will certainly be paying attention to this with their interest rate decision in 2 weeks.
Apple and Cisco have forged a partnership aimed at helping Apple’s mobile devices communicate more effectively on corporate networks where Cisco gear is widely used. The companies are also working on creating “a seamless experience” for iPhones and iPads in environments featuring Cisco voice/video hardware and Web-conferencing services. The deal comes 13 months after Apple announced a partnership with IBM, which has since led to Big Blue releasing a number of iOS apps meant for business verticals.
The White House is considering sanctions against both Russian and Chinese companies and individuals as it tries to stop its alleged cyber theft of commercial and economic information. The move comes as the U.S. grows increasingly frustrated at efforts to steal commercial secrets. President Obama signed an executive order in April declaring a national emergency over cyber attacks, which “constitute an unusual and extraordinary threat.” This is a really big deal, and cyber security will be needed for decades to come.
Since 1928, the S&P on average has declined 1% in September, the worst month on the calendar. Historically, selloffs begin in August, gain momentum in September, and bottom in October. Year-end rallies historically start in October and gain momentum in November and December, the 2 strongest months on the calendar. The theme could very well play out this year, although August was much worse than normal. We expect the choppiness to continue. Our sense is the overall Market has lower levels to go, but certain stocks might have already experienced the lows for the year, reached during the flash last week. We’re all over it.