The recovery has been stalling and it is becoming easier and easier to argue that the next recession (often mislabeled as a double-dip recession) is afoot.  Friday’s net-zero in August non-Farm Payrolls and a lower revision to prior employment gains only exacerbates some of the fears out there.  There is a myth or theory that certain months are notoriously good or bad for the stock market, and September is actually supposed to be the most negative month of the year.  We are taking a look at the historic figures and then looking at the economy and the big DJIA stocks to see if that is going to be the case in 2011.

August was very painful, even if the markets recovered from the lows. The DJIA was down about 4.5% and the S&P 500 fell by almost 5.7%; the tech-heavy NASDAQ fell by 6.4%.  The Stock Trader’s Almanac shows that September is more often than not a jinxed month for stocks as traditionally the worst month on the calendar for stocks.

On average since 1950, there is a 0.9% drop in the DJIA.  The worst September was in the weak economy of 2002, when the DJIA fell almost 12.5%.  The U.S. was about to attack Iraq and was still recovering from the economic turmoil after the terror attacks of the prior year.  Oil had gone from under $20 a barrel to nearly $30 and gold had moved up from $280 per ounce to $320 per ounce.  The good news, if there is good news… Stock Trader’s Almanac shows that pre-election Septembers are down “only” 0.6%.

The best September for the DJIA is said to be back in 1954, but the September weakness barometer was way off last year in 2010 and it was also off in 2009.  Isn’t it October that investors worry about the big market crashes?

However, in pre-election years, such as this one, the Dow industrial average is down only 0.6 percent in the average September.  So, what is in store for 2011’s September?  The DJIA closed August out at 11,613.53 and the DJIA was under 11,250 on Friday morning after the dismal employment data was released.  Does that mean that the bad news is already priced in or does that mean that the pain is only just beginning?

So, what is store for DJIA stocks?  Here is a quick hit on some of the key pivots for the DJIA (NYSE: DIA) today looking into the rest of September.

Verizon Communications Inc. (NYSE: VZ) just boosted its dividend this week, a commitment that earnings should remain steady and high for years and years.  While the market has grown to expect dividend hikes, we were not as certain that a dividend hike would come.   This now puts pressure for AT&T Inc. (NYSE: T) to also hike its dividend later this year even if it does face a multi-billion break-up fee if that DOJ-blocked acquisition of T-Mobile stays a blocked deal.

International Business Machines Corp. (NYSE: IBM) is the key to watch as its weighting accounts for more than 11.2% of the DJIA due to its super-high share price as the DJIA is a price-weighted equity index.  A report this week shows that some of its growth may be dying on the vine.  That would not be good for tech stocks.

Bank of America Corporation (NYSE: BAC) is now only about 0.5% of the entire DJIA since its price has fallen so much.  The problem is that BofA is becoming a leading indicator based on some trader metrics.  If it does not lead the markets, it still certainly affects financial and banking stock trends.  Its troubles are far from it and the bank is expected to have more lawsuits against it and even if regulators have supposedly asked the bank for a contingency plan if its metrics worsen further.  Still, we gave several situations which could take BofA’s stock back to $10 and even higher.

Kraft Foods Inc. (NYSE: KFT) remains a wild card as it looks to break itself apart.  That may not matter immensely, but its weighting could change in the months ahead.

McDonald’s Corp. (NYSE: MCD) just hit a 52-week at the end of August and shares are up almost 20% so far in 2011 as is.   Can it continue?  The Coca-Cola Company (NYSE: KO) also just hit a new year-high of $71.10 on September 1 and it is up about 7% so far in 2011.  Can those higher-weighting stocks keep chugging higher?

And what about Hewlett-Packard Co. (NYSE: HPQ)?  It was under $25.00 Friday morning and that is now down about 50% from its 52-week high.  The coming spin-off of the PC unit is going to further move H-P’s weighting down in the DJIA, assuming the DJIA keeps it in the index.  Except for BofA, H-P is the worst performing DJIA stock if you look at the drop from its 52-week highs.  We recently highlighted a bunch of dirt cheap technology stocks trading well under 10-times earnings, but there is a bit of a calendar effect we referred to in there as well.

As far as Exxon Mobil Corporation (NYSE: XOM) is larger than Chevron Corporation (NYSE: CVX) by market cap at roughly $352 billion versus about $193 billion, but the Chevron share price of about $96.50 versus almost $72.50 for Exxon creates a weighting paradox.  Chevron is almost 6.5% of the DJIA, versus a weighting of about 4.8% for Exxon…. Still, that is about 11.3% of the DJIA.  If an outsider were to just say 30 stocks, so each has a 3.333% weighting, you can see that energy is a high weighting of the DJIA.   Here is how this matters too… The Stock Trader’s Almanac noted on Friday, “Crude oil generally tops in September with the peak driving and hurricane seasons behind us.”  Traders tend to trade oil giants based upon the directional price moves of oil rather than just on their earnings and proved reserves.

Before you have your worry session, consider one thing.  While August and the summer was painful and while “Sell in May and Go Away” was very true, much of the current climate can be called at least a bit similar 2010.  That was a difficult summer as well.  Imagining that the growth ahead will be the same for the rest of this year as it was last year is a hard sell.  Still, the curse of September should have been called “The September Blessing” in 2010.  The DJIA rose from 10,014.72 at the August 31 close to 10,544.13 on September 13 and it closed out September 2010 at 10,788.05.  The DJIA managed a 7.7% gain in 2010.  The DJIA even managed a 2.2% gain in September of 2009 as well.

Some will argue that these calendar targets do matter, others say these are hogwash.  As far as what we will be looking at all month, watch out for the guidance issues throughout the month by the biggest economic companies.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

JON C. OGG

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.