August tends to be a fairly sleepy month for trading, as various institutional investors seek to enjoy what remains of the summer heat. When it’s back-to-school season, though, it’s bound to be back to trading, as investors return to the hot seat, looking to pick up where they left off before the sizzling summer months.
As trading volumes increase, so too can volatility. And if traders are looking to sell after a scorching hot summer for the tech sector, perhaps a correction could be in the cards. Indeed, historical selloffs have struck in the month of September. But before you sell all your stocks before August ends, you should know that it’s unwise to make investment decisions (especially big ones) based on something completely arbitrary and divorced from the fundamentals. Personally, I think it makes little sense to sell stocks because one fears a particular month.
Not every September is one to remember! Still, I think investors should be prepared for a rise in volatility and volume. Whether that means readying for the tides or getting ready to put new money to work (keeping the powder dry for bargains), it pays to be ready for whatever the market throws at you. September could certainly seem a cooling of momentum or even a panic of sorts. But it’s nothing that you, a disciplined long-term investor, can’t handle!
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What should investors do in anticipation of the September effect?
September gets a bad rap in markets. It’s not exactly a month that traders look forward to, especially if a rise in trading volumes amplifies moves in either direction.
Given stocks tend to take the elevator down and the stairs up, I’d argue that a sudden uptick in volatility could be most frightening to those new investors who’ve grown all too used to the calm waters of August. Indeed, how many times have we seen the broad market indices finish a day flat? Indeed, a steady move higher week over week may be replaced by more choppiness. And with that, investors should be ready for anything as September, a month that many dread, rolls through.
Though rebalancing and de-risking ahead of the month may be fine if you find you’re not ready for a return of volatility, I think that most investors would be fine doing not much of anything. If you’re on track, you’re diversified, and have cash to buy the dips, you’re already ready for September and the potential September effect. As such, treating the month as any other month, I think, makes the most sense.
What’s on the value menu for September?
The big question investors should ask is what is on sale going into September? Right now, I view shares of Restaurant Brands International (TSX: QSR) as deeply undervalued and less likely to slip if markets were to fall into a September hangover. Today, shares go for 13 times forward price to earnings (P/E) to go with a 3.8% dividend yield. Sure, the latest quarter (Q2) wasn’t good, with profits disappointing and expenses weighing.
But in the longer term, I like the brands and their growth potential, especially as consumers continue to crave value. For investors, QSR stock is on the value menu ahead of September, as Bay Street beats the stock down over that weak number. On the plus side, management hinted that better times could be ahead as prices look to normalize. Is there room for improvement going into year’s end? Definitely. But with a low bar, I think QSR is poised to impress, even if the rest of the market isn’t poised to come September.
