Will September 2017 Be More of a Headache for Investors
If there is a difficult month that could cause a headache for investors, it’s September. It’s not surprising that, on the first full trading day of September, the Dow Jones dropped by more than one percent. This is bordering on correction territory. Frankly, the global situation now is rather unfavorable for risk-taking, especially in the markets. A September stock market crash seems more probable than possible now.
You should expect something on a bigger scale than a market correction. September has typically been a poor month for investing, but September 2017 seems especially ominous. This month has “stock market crash coming” written all over it. As has been the case for the past few years, the main source of risk to the markets has geopolitical origins.
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Still, as tense as the international situation has been, nothing could be more of a downer on economic enthusiasm than the potential of a real bona fide nuclear confrontation. Such is the risk of a major conflict now that a mere stock market pullback is not an option, as it were.
President Vladimir Putin of Russia, who has much to lose from a war in North Korea, didn’t pull any punches. Putin sent a general warning about the risks of playing the wrong hand against Pyongyang. (Source: “President Putin – ‘Ramping up Military Hysteria’ Against North Korea Could Lead to Planetary Melt Down,” 21st Century Wire, September 5, 2017.)
As for stocks, the North Korean tensions could certainly contribute to a stock market crash in 2017. If that’s not enough, the stock market crash history might persuade you to examine your financial strategy. The statistics are clear. The stock market crash timeline shows that, since 1987, the Dow Jones Industrial Average (DJIA) in August has produced an average loss of 1.1%. That’s just about the percentage that the DJIA lost on the first trading day of September. (Source: “Stocks Just Entered a Historically Scary Period. Here’s Why,” TIME, August 4, 2017.)
The negotiations to resolve the rapidly escalating geopolitical crisis won’t be easy. Russia and China will try to avert a war and push for talks that would involve the U.S. giving up some crucial positions. Washington has openly talked about the possibility of having to use military force. How will the markets react? In the short term, there will be more risk aversion.
That will support the dollar somewhat; let’s just say it will slow down its present downward trend. More significantly, it will help boost the price of gold, which has resumed a bullish trend. Gold has closed above $1,340 on the day after Labor Day. Even if the likelihood of a military attack against North Korea remains weak for now, the potential for escalation is high. The United States and regional partners, such as South Korea and Japan, have engaged in military games.
That provides a basis for exchange and negotiation. For instance, North Korea might agree to stop nuclear warhead and missile launch tests in exchange for a withdrawal of U.S. troops from the so-called demilitarized zone (DMZ). This is the border area that separates North from South Korea.
Even if negotiations do manage to achieve a de-escalation, they won’t fix the main problem. North Korea has proven that it has nuclear ordinances and the means to deploy them. That will maintain heavy pressure until one of two basic things happen. Either Pyongyang or Washington will have to back down from their respective and most stubborn positions. That won’t be easy. It will keep the markets on edge for a few months to come.
