Taking Stock

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Tony Crowell
Tony Crowell

September Song

September has been a hard luck month for stocks. Since it was created in the 1890’s, the Dow Jones Industrial Average has averaged a 1.1% loss for the month. The other 11 months averaged a 0.8% gain. I have yet to come across a solid reason for this anomaly although there may be some logic to the theory that investors sell stock to pay for newly arriving tuition bills from their kids schools and colleges.

If there were causation, the pattern would disappear, as traders would unload stocks in August. There are far more material methods to manage stocks and investors should bear in mind that historical stronger markets usually develop in the fall and early winter. This summer, the market was unusually placid with the S&P 500 closing with less than a 1% move in either direction for 40 consecutive trading days.

Considering the unexpected “Brexit” vote in the UK, tumbling oil prices and very mild earnings growth, the overall market has held up well, still hovering near its all-time highs. Investors still obsess on prospective Federal Reserve interest rate actions. Their obsessions become short-term self-fulfilling prophesies and investors would be better advised to observe economic indicators like the job growth report due this Friday, housing sales and real wage growth. These remain sufficiently encouraging to look beyond September doldrums to the next round of company quarterly earnings reports.

Rather than cling to the almost invisible yields from conventional money market funds, I am parking some reserve funds in BlackRock Limited Duration (BLW-$15). This is a closed-end fund currently trading at a 6.5% discount and paying 6.6% in monthly distributions. The eventual increases in interest rates will torpedo fixed rate investment values, with the biggest hits to the longer-term maturities.

This fund has a current duration of only 2.5 years, a cushion against rising rates. I also continue to use Wells Fargo Multi-Sector (ERC-$13) and Eaton Vance Limited Duration (EVV-$13). Both currently yield over 8% with slightly longer portfolio durations. Closed-end funds like these offer attractive discounts for buyers but investors should remember that these discounts will doubtlessly prevail should they ever need to be sold.

The financial stock sector is at last showing some strength, boosted by expectations of an end to the era of near-zero interest rates I am adding as a new buy J.P. Morgan Chase (JPM-$67), the largest U.S. Bank. JPM recently passed the U.S. Treasury “stress test” for big banks for the fifth straight year. Its current dividend is $.48 quarterly, a yield of 2.8% which investors can expect to be regularly increased.

While consumer spending is increasing, there are considerable variances among the myriad companies in this sector. Simon Property Group (SPG-$215) continues to post good numbers from its shopping centers despite online competition. So does TJX (TJX-$77), whose TJ Maxx stores are ringing up solid “back to school” sales.

Broadcom (AVGO-$176) reports earnings before the markets open on Friday. Analysts expect continuing rising results, based in part on new business from Apple (AAPL-$106). Apple announces its latest iPhone next week. Commentators expect only mild changes although Apple likes to spring surprises. Its next earnings report will come the last week in October.

ARM Holdings (ARMH-$67) obtained shareholder approval for its buyout. Despite grumblings in the UK about losing a technology powerhouse to a Japanese fund, we should be receiving our funds from the buyout by the end of October.

Meanwhile, investors should not hold back from using market hiccups to add stocks in quality companies. As Frank Sinatra reminded us:

But the days grow short when you reach September

And the autumn weather turns the leaves to flame

And I haven’t got time for the waiting game . . .

 

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected]/949.494.1376/800.697.2622/www.crowellroberts.com

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