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October correction

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by Peter Switzer

Spooky stock market September proved a fizzer and now we have to brace for October with one US commentator warning to expect a seven to 17 per cent market sell off! However, the same guy is bullish on shares!

As Manuel from Fawlty Towers might say: “Que?” (For those less Latin — “what?”)

More on this later — let’s just set the scene.

Anniversaries

There is some debate about what the scariest month for Australia is, but both months are pretty bad when it comes to share price movements. That said, September has a shocking record.

As the AFR pointed out this weekend, last September Lehman Brothers collapsed, Merrill Lynch was ‘given’ to Bank of America and AIG became effectively government-owned.

The Asian financial crisis happened in September 1997 and a year later the Russian financial crisis eventuated. September 11’s market slump clearly was in the month in question and the worst month in the Great Depression was September 1930 when the market slumped 30 per cent.

The month under the spotlight is also the end of the US financial year and those carrying a capital loss on their shares can sell off to realise the loss before the fiscal deadline chimes in.

Financial markets up

The early part of this October could attract a few sellers before the next reporting season kicks off in November and beyond.

The biggest reason for a correction of the market is the fact that the S&P/ASX 200 index has gone up close 50 per cent since early March. The US Nasdaq index is up 64.8 per cent and the S&P 500 has put on 53 per cent. So a pullback is not without a chance given that stock markets don’t usually advance in straight lines.

Healthy correction

Now to the correction guy. Paul Schatz, president of US-based Heritage Capital, was asked how to play the market by CNBC.

“I’ve been bullish for a while and over the next year, we’re going higher,” he said. “In the interim, the best chance for the first significant correction since the bull leg began in March is coming up early to mid-October.

"It lasts four to six weeks and we go down seven to 17 per cent. Other than that, we’ve been on an uptrend and it’s going to be a place to buy."

He thought a correction would be healthy for the markets and I think he’s dead right. That said, the likes of Shane Oliver thinks the local S&P/ASX 200, which is now at 4713, is heading to 5000 by New Year’s Eve. Craig James from CommSec says 4,900. If you’re short-term player, you’ve got to work out your play, but long-term investors can stop worrying and dream of Christmas.

Week ahead

By the way, the big statistical Wall Street watches for this week are:

29 September

US Consumer confidence (Sept)

1 October

US Personal income (Sept)
US ISM manufacturing (Sept)

2 October

US Non-farm payrolls (Sept)

For advice you can trust, contact Switzer Financial Services.

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Published on: Monday, September 28, 2009