September Monthly Outlook – “This Time It’s Different’

Sir John Templeton, the founder of Templeton Investments, said that the four most expensive words in investing are “This time it’s different.”

The most predictive part of the Treasury yield curve, the 10-year to 2-year spread, inverted on a closing basis on 8/22/19 and remains inverted currently. This indicates that the US economic expansion may have between 1-2 years before falling into recession. While the stock market can rally on the hope of a trade deal with China, fundamentals can develop later that cause earnings and the economy to disappoint. That’s what the inversion is telling us. But the curve has inverted five times since the late 1970s—and each time a recession started an average of 20 months later. The chart below shows how predictive a yield curve inversion is. Make no mistake, a recession will eventually come. I don’t believe “this time it’s different”.

10Y/2Y Spread Inverted Before Each of the Last Five Recessions


Source: as Blackstone as of 8/26/19


August was one of the most volatile months in a decade.  On an average day over the past month the S&P 500 has moved +/-1%, one of its widest ranges since the financial crisis. There were 11 out of 22 trading days with price moves of greater than 1% plus or minus during the month. Despite many large daily and intraday swings, the S&P remains stuck within a narrow range between 2,945 and 2,822.


Source: SentimenTrader

The wide swings in stocks are due in no small part to a historic level of uncertainty regarding the U.S. administration’s economic policies. An index of that uncertainty has spiked to a level that matches other major financial or geopolitical events.


Source: SentimenTrader

These uncertainties have led to sharp indecision by investors – buying on any good news and selling on any bad news.  In my experience, periods of sharp indecision are generally resolved sharply. Given that we are heading into the statistically worst month for stock market returns, I am preparing as if this indecision is resolved to the downside.  Also, while consumer spending has remained strong, consumer confidence took a steep decline in August, falling by the most since December 2013. One out of every three consumers surveyed mentioned tariffs and trade war as their biggest concern.



Source: Yardeni Research                                                                                                                  Source: FactSet, MarketWatch

I expect September to be the same roller coaster ride we saw in August. At the moment, I believe the upside potential is less than the downside risk. As such, we remain neutrally positioned with a cautious bias. I would rather miss out on a small upside move to avoid getting caught in a swift downside adjustment. Feel free to call us with any questions.

P.S. Thank you for your referrals. They are making a big difference in my practice. Feel free to share my name with your friends on Facebook or LinkedIn.


September Calendar of Events   (comments and additions for future months are always welcome)

  • Summer is over and kids are going back to school  – please be careful on the roads.


Sep 2nd             Labor Day

Sept 11th          Patriot Day- honoring those who lost their lives on 9/11/01

Sept 12th          Eloise and my 11th anniversary

Sept 23rd          Autumn begins

Sept 29th          Rosh Hashana begins – wishing all our family, friends, and colleagues of the Jewish faith a very Happy New Year

Sept 29th          National Coffee Day – Where would we be without coffee?



Sources: Yardeni Research, SentimenTrader. Blackstone, FactSet, MarketWatch



Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.


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