With summer technically over, the financial markets roll into the dreaded month of September, which leads up to the contentious midterm election season that has financial advisers paying extra-close attention to client portfolios.
"I'm not worried, I'm just more conservative than I was six months ago, and I'm allocating client portfolios to more conservative investments," said Rockie Zeigler, founder of RP Zeigler Investment Services.
While some advisers are
tilting portfolios toward a more defensive position, other advisers are adopting a strategy of reducing the risk exposure in existing portfolios while staying aggressive with new money coming in.
"We've been reallocating all along. As markets have gotten pricier, we've been reducing domestic equity positions and moving more money to international and emerging markets," said David Demming, president of Demming Financial Services.
With the
S&P 500 Index up nearly 325% since the March 2009 low, every new market high can generate fresh anxieties. Couple that with the arrival of September, historically the worst month for stocks, and financial advisers can easily justify some defensive posturing.
For some perspective, consider that since the end of World War II, the S&P 500 has averaged a September decline of 0.62%. September is the only month with a negative average stock market performance, posting positive returns only 43% of the time.
The outlook is even worse when the data are narrowed to include Septembers only during midterm election years. Over the past 18 midterm election years since 1945, the S&P 500 has produced an average decline of 0.90% in September, according to Sam Stovall, chief investment strategist at CFRA.
Even worse, during Septembers leading up to a change of the majority party in Congress, which is expected this year, the S&P dropped by an average of 1.8%.
"Whether you look at all Septembers or just midterm Septembers, it's bad," said Mr. Stovall. "The midterms are key for one word: uncertainty. But don't head for the hills, because the fourth quarter of the year after a midterm election tends to be the reversal for the markets."
The odd twist with Septembers, especially those in midterm election years, is that no matter what happens, the markets usually rally for the next several months.
Since World War II, the fourth-quarter performance of the S&P in midterm election years has averaged 7.5%, with only 1978 and 1994 producing negative quarters.
What's more impressive is the return in the 12 months starting Nov. 1 of a midterm election year. Over that period, the S&P has averaged a gain of 16.7%, which breaks down to 13% when the majority party in Congress changes, and 19.6% when the majority party does not change.
"It's okay to be a bull with a lower-case 'b' right now because history might still work out," Mr. Stovall said. "It's a good time for being cautiously optimistic."
The dark cloud of September notwithstanding, there are reasons to believe the stock market is not yet ready for a pullback.
For example, the SPDR Gold Shares ETF (GLD) last month experienced
$1.6 billion in redemptions, more than any other ETF in August.
The closely watched gold ETF declined by 1.7% in August and is down 8.1% from the start of the year, which is an indicator of market bullishness as
interest rates move higher and the economy continues to expand.
The S&P 500 is up nearly 10% from the start of the year.
"Right now, there is just a lack of attractive alternatives to domestic stocks," Mr. Stovall said.
Still, it is difficult for most market watchers to overlook the curse of September.
"It is the banana peel month, as some of the largest slips tend to take place during September," said Ryan Detrick, senior market strategist at
LPL Financial.
That sentiment is front and center for Brian Jones, founder of NextGen Financial Advice.
"We're talking to clients about how risky the markets are, and we're showing them how their current portfolio would have performed in 2008," he said. "For clients who are closer to retirement, we've started adding one-year CDs that are giving some good yields and keeping the money safe."
