STOCK TAKE: Weak Septembers:September has historically been the worst month for stock markets. US indices have fallen in September by an average of 0.9 per cent over the last eight decades, significantly worse than the average monthly return of +0.8 per cent. This underperformance has been consistent – it's been the worst month in five of the last nine decades, and has never ranked higher than ninth during that time.
August has already been both awful and volatile (and it was only the tenth most volatile month in the last 75 years). Weak Septembers typically follow weak summers. A volatile August tends to lead to a volatile September.
Quantitative analyst Rob Hanna (quantifiableedges.com) notes that six of the last eight such instances have seen monthly ranges of 9.5 per cent or more.
A fluke? Perhaps, but with the SP 500 suffering its worst ever start to September, 2011 doesn’t look like it will fight the trend.
Bank threats:Bank shares were bloodied this week, while Deutsche Bank chief executive Josef Ackermann admitted that it was an "open secret" that "numerous" European banks "would not survive" if they wrote down sovereign debt holdings to market levels.
People in the sector will be heartened, however, by the FT report that regulators are likely to “soften” rules that would require banks to hold enough liquid assets to survive a 30-day run on their funding.
According to JP Morgan, just seven of 28 European banks tested met the proposed standards, and collectively faced a liquidity shortfall of €493 billion. French banks like BNP Paribas, Crédit Agricole and Société Générale were particularly exposed and were looking at a shortfall of €173 billion.
Not only that, the rules could cost them almost 12 per cent of 2012 earnings. Tough bank capital requirements, in contrast, would only cut earnings by 5 per cent, JP Morgan reckoned.
Corporate warnings:"Time to stiffen the sinews, summon up the blood and gird the loins." Or so says the inimitable Albert Edwards, Société Générale's renowned uber-bear.
Corporate profit margins are at record levels, despite fragile consumer sentiment. Robust demand leads to inflation; weak demand means that cost increases aren’t passed on, however, causing margins to get “crushed”, says Edwards. “That is the tipping point we have now reached”.
Edwards is no lone voice here. Citigroup slashed earnings estimates this week, arguing that US government largesse has artificially boosted corporate profits by 20 per cent.
Europe is even worse. Andrew Lapthorne, Edwards’ colleague, noted that analyst optimism in Europe had sunk to a level only ever reached in recession.
