September could be harsh for Wall Street markets

NEW YORK -- On Wall Street, September is sometimes seen as a curse, historically the worst month.

As the market enters this September, it has higher prices and upward momentum going for it. But unfortunately, those gains could also work against the market over the next month -- if economic or earnings data disappoints in the least, investors could rush to lock in profits.

"People are becoming a little bit wary, because the market has had a decent run going into a seasonally slow time. ... If there is any type of crack in the market, I think people will react to it," said Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray.

September is traditionally tough for the market for a variety of reasons. Companies often reduce spending as the end of the year approaches and they realize that much of their budgets have been used up.

Individual investors often take time to assess where their portfolios stand for the year and decide to pull back on stocks, thinking the market has already hit its high for the year.

This year, Wall Street goes into September already having had a stunning advance. The Dow Jones industrial average and the Standard & Poor's 500 index ended August with their sixth set of monthly gains. The Nasdaq composite index enjoyed a seventh consecutive winning month.

The last time the Dow had a stretch of six or more consecutive monthly gains was the eight-month run from December 1994 through July 1995. The S&P last had a six-month rally from January through June 1996.

The last time the Nasdaq had a streak as long was the 10-month period that ran from December 1994 through September 1995.

It could be tough for the gauges to pull off another winning month, historically at least.

Since 1950, the month of September has produced total percentage losses of 43.6 percent for the Dow and 27 percent for the S&P, according to the Stock Trader's Almanac. On average, the Dow has declined 0.8 percent in September, while the S&P has forfeited 0.5 percent.

Since 1971, the month of September has taken 25.8 percent away from the Nasdaq composite index, according to the Stock Trader's Almanac. On, average, the Nasdaq has lost 0.8 percent in September.

Combine historical tendencies with a market that some market observers fear is overvalued, and stocks could be doomed.

"That is a little dangerous," Belski said.

The Dow is trading at levels not seen in 14 months, while the Nasdaq is at highs last witnessed 16 months ago. But with those gauges managing to hold those levels for two weeks now, some on Wall Street believe those highs could end up acting as support levels.

That means the market might hover around those levels, rather than fall precipitously if September yields disappointing economic news or if companies issues profit warnings, said Brian Williamson, an equity trader at The Boston Company Asset Management.

"If you get any kind of negative sentiment, I think the market will work its way to these well known levels," he said.

Many analysts believe any weakness will be short-lived, saying the economy is strengthening and investors increasingly want to buy stocks.

"I wouldn't be surprised if we see the market settle a bit between September and October," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "But I wouldn't be banking on a big correction in September and October, because even though the thinking is the market is overvalued, you also have the argument that we are seeing a nice recovery in the economy."

Lydon believes the market has more upside potential left in 2003, saying, "I think we are going to see higher highs by the end of the year."

Wall Street's main gauges ended the week higher. It was the fourth straight winning week for the Dow and the third for the Nasdaq, S&P and Russell 200 index.

The Dow ended the week up 66.95, or 0.7 percent, closing Friday at 9,415.82.

The Nasdaq had a weekly gain of 45.13, or 2.6 percent, closing at 1,810.45 Friday. The S&P rose 14.95, or 1.5 percent, for the week, closing at 1,008.01.

For the week, the Russell 2000, the barometer of smaller company stocks, advanced 11.92, or 2.5 percent, closing at 497.42.

The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,770.56, up 158.09 from the previous week. A year ago, the index was at 8,654.04.