Why a brutal August, September may mean better times ahead for markets

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The calendar matters for investors. And for many, as the calendar turns into the fourth quarter, a blush of hope has moved through expectations.
Why? The fourth quarter has a pretty decent track record for stock market performance – a history that is even more pronounced when both August and September have been negative.
According to Ryan Detrick, Market Strategist at Kimble Charting Solutions, over the past 20 years, Q4 has been higher for U.S. stocks 80 percent of the time with an average 5 percent return. When August and September are negative like this year, stocks rise almost 7 percent on average 86 percent of the time.
This year might be helped by the negative sentiment that pervades the tape. The number of bears is rising, bulls are falling. Internals are near or at oversold levels. A particularly compelling argument for a bullish stance is the National Association of Active Investment Managers (NAAIM) and the current level of equity exposure. It is nearing the lowest level in the past few years and previously has marked some major S&P 500 buy signals.
Looking deeper into the calendar, we often think of October negatively – the various crashes over time haven’t helped. But many forget that October is often also a ‘bear breaker’ and marks a pivot for the bulls. I always like to say, however, the 10th month can be tricky. This year appears to be no exception with activity dragged lower by uncertainty and some weak economic data points (weak U.S. jobs today for instance).
But earnings season is ahead and Detrick also highlights that as a possible positive catalyst. The bulls appear tamed but if history holds true, a rally into the end of 2015 is ahead. And if oil stabilizes, Canadian stocks could go along for the ride.

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