MARKETS BRACE FOR SEISMIC SEPTEMBER
September 4, 2007 -- The Labor Day weekend is over, the kids are back in school and Wall Street traders have returned to their desks, bracing themselves for a bumpy ride.
But this year investors shouldn't count on the "Santa Claus rally" to rescue them from the tumult created by the subprime market implosion.
" People talk a lot about October, because that's when the big crashes - 1929, 1987 - have happened, but actually it's September that is usually the worst month of the year for stock indexes," said Tobias Levkovich, U.S. equity strategist at Citigroup.
This September promises to be extraordinarily interesting. Next week, investors will get the first signals of how badly major financial services firms have been hit by the subprime market's collapse and the credit market fallout.
A week later, on Sept. 18, the Federal Reserve's policy makers meet to discuss whether the credit market carnage has damaged the economy. Fed Chairman Ben Bernanke has made it clear that he will act promptly to slash rates at the first hint that this is occurring, and there is less chance of the market getting the jitters if the rate cut follows a regularly scheduled meeting.
Even if investors emerge unscathed from September, October has more perils. Hedge funds will have reported at the end of the third quarter and at least some of those funds will permit investors to sell their holdings.
The subsequent forced sales of hedge fund holdings could further rattle markets."
"There is a huge unknown risk that is going to have to work its way through the market, and that is going to take months," warned Stephen Wood, senior portfolio strategist at the Russell Investment Group.
"We should expect to see financial stress of the kind that we haven't seen since" the collapse of hedge fund Long-Term Capital Management in 1998, Wood said.
MARKETS BRACE FOR SEISMIC SEPTEMBER | By SUZANNE McGEE | Business News | Financial | Business and Money