Dow Jones Industrial Average: Time To Brace Yourself For A Stock Market Sell-Off?

market correction bear: Labor Day is coming up. On September 2, the North American key stock indices will be closed for business—no trading will take place. Not only will it mark the end of summer, but it will also be the last long weekend before the Thanksgiving weekend in November.

That said, one question comes to mind: why does Labor Day matter to investors; what’s so important?

First off, during the summer months, the volume on the Dow Jones Industrial Average (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX) is usually low. This means participation isn’t as high, so major market moves usually don’t occur. In September, the volume then starts to edge higher. Those who were away for vacation come back to their trading desks and start buying or selling—in other words, they start adjusting their portfolio.

Keep in mind that the majority of the crashes we have seen in key stock indices occurred during the time between September and November. This includes, Black Monday (October 19, 1987) and the crash after Lehman Brothers failed and filed for bankruptcy (September 15, 2008).

Further, the key stock indices have accumulated some risks that investors shouldn’t forget, as they have increased significantly. Look at the chart below of the S&P 500:

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Since the first trading day of the year, the S&P 500 has increased roughly 16%; other key stock indices have shown a similar performance. You have to keep in mind that this rise in the key stock indices was based on very weak growth in the U.S. economy—the gross domestic product (GDP) growth rate for the U.S. is anemic. In addition, the unemployment situation remains bleak.

On top of this, going forward, for the third quarter of 2013, 75 companies on the S&P 500 have provided negative guidance about their corporate earnings, while only 17 have provided positive guidance. (Source: “Q2 2013 S&P 500 earnings round-up,” FactSet, August 16, 2013.)

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