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September: Get Ready for "Fall" Season!

September is known to market watches as the month when stock markets do worse. Statistical analysis of 100 years data has shown that September is only month when on average markets are down 1% whereas other 11 months it has been positive. Looks like markets align themselves with start of "Fall" season in September! With markets close to all time high this year and generally very positive till early Aug, how would they fare this September. Let's see what events are going to unfold in next few weeks:

  • Syria attacks - next week Congress after much debating would most likely pass resolution granting President Obama authority for limited attack on Syria to send a message to Assad to maintain America's credibility as international police (whatever that means). This would really give markets a jolt and most likely cause quite a bit of volatility. However unless the war escalates (due to Iran attacking Israel or Western Embassies in Lebanon which real possibilities), long-term effects of this war should be muted due to limited nature of attack.
  • Fed "taper" talk - Fed has been preparing markets to get ready for less dosage of stimulus medicine. This has reflected in 10-year treasuries touching 3% yield mark first tine in 2 years. So markets are prepared but is Fed prepared to take the action it said it would take. Given by Sept Employment report, most likely Fed would go cautiously and just reduce the purchases from $85 Billion to maybe $60-70 Billion and watch out the economic indicators over new few months. So in summary, Fed "taper" talk would continue and Fed stimulus would continue well into 2014. Bond market (and stock market) should like the news. Expect REIT stocks (like MORL, AGNC, NLY) to pick up steam again and recover 5-10% over next few weeks
  • Emerging Markets currency crisis - remember Asian crisis of 1998. This is very similar to that except it is happening slowly and spread across most emerging countries from Brazil real to Indian Rupee to Turkish Lira. Most of these currencies are down by 10-20% which is complicating jobs of their governments and central banks. But these currencies should find their footing within 5% of their current values once Syria crisis is on back-burner.
So in all, expect markets to be volatile for next 4-5 weeks after which clouds would subside and markets would be celebrating holiday season. My prediction for DOW for year end is 15500 (about 5% up from current). I am still bullish on Solar stocks - but this time on Chinese solar stocks since recent changes in demand/supply have created favorable conditions for many players in this sector. I like SUNE, JASO, YGE, TSL to name a few.
That's all for now. Have a great weekend!
/Shyam

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