Why the Dow Began the Month Down

The month of September is notorious for being the absolute worst month for markets. According to a CNBC study cited by my colleague Dan Caplinger, since 1896, the Dow Jones Industrial Average (INDEX: ^DJI  ) has posted an average loss of 1%. And if you take only the last 12 years into consideration, the average loss grows to more than 2%.

Source: CNBC, "Rough Road Ahead? September Is Dow's Worst Month."

While it's impossible to say whether the trend will continue this month, we're definitely headed in that direction. For the day, notably the first trading day of September, the Dow is down more than half a percent.

Today's declines are a function of two factors.

First, this morning, the Institute of Supply Management said its index of national factory activity -- a closely watched statistic -- fell to 49.6% in August. A reading below 50% indicates contraction. This marks the third consecutive month of declines and was the worst reading in over three years.

On the heels of this news, shares in material and industrial stocks such as Caterpillar (NYSE: CAT  ) and United Technologies (NYSE: UTX  ) led the Dow's decline, down 3.2% and 1.8%, respectively, in intraday trading.

Second, uncertainty surrounding Europe is nearing a peak.

Over the weekend, it was reported that the Spanish government will inject billions of euros into recently nationalized lender Bankia after the company posted a 4.5 billion euro loss for the first half of the year.

This upcoming Thursday, moreover, the European Central Bank will meet to determine whether to step up its assistance to the continent's struggling economies. According to The Wall Street Journal, "Central bankers must decide whether to shed their past preference for guarded action and sweep to the rescue with a major bond-buying program."

Despite the bad news surrounding manufacturing activity and Europe, one ray of sunshine greeting investors today was a pair of upbeat reports from major American car manufacturers General Motors (NYSE: GM  ) and Ford (NYSE: F  ) . Both companies reported double-digit sales gains in August from a year earlier: GM's auto sales rose 10%, while Ford's were up an impressive 13%.

Foolish final thoughts
Whether or not today is a harbinger of things to come for the rest of the month is anybody's guess. One thing's for certain, however: Whether the market is up or down on any particular day wouldn't concern you as much if your portfolio were grounded in any of the three stocks identified in our free report: "The 3 Dow Stocks Dividend Investors Need." To claim your free copy of this limited-time report, simply click here now.

Fool contributor John Maxfield does not have a financial position in any of the companies mentioned above. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On September 05, 2012, at 4:35 AM, kahunacfa wrote:

    The DOW began September down because: 1. The Euro-Zone is still unstable, and Greece is likely to exit the Euro. 2. The US Domestic Economy is in a funk, 3. Banks will NOT lend to small businesses that want to expand and hire new workers, 4. Mortgage re-financing is stalled by poor lending practices still, 5. The US Stock Market at best is only fairly valued, not undervalued, and 6. The current President of the United States, although very likeable, lacks leadership skills needed to improve US Economic performance.

    Finally, there is little reason for investors to buy stocks until after the Presidential Election race is settled. After the election is over, almost no matter who wins, the political uncertainty will be settled, the market could rally into year end.

    Kahuna, CFA

    Investment Professional

    1974 - Present

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