Best August For Stocks In 14 Years; What Lies Ahead In September?; Bought Shares Of Exact Sciences (EXAS)
It is Labor Sunday, as the traditional end of summer quickly approaches, football is back in focus, major league baseball is in the stretch run — and, Wall Street money managers and traders will return to look ahead to the final four months of 2014. The August we just finished, was the best August for stocks in 14 years, with health care (especially the bio-tech sector) and consumer staples leading the way.
“What, me worry in the face of escalating geopolitical tensions, the stock market offered the rallying cry made famous by Alfred E. Newman,” wrote Vito Ricanelli in this weekend’s Barron’s. “Continued strong U.S. economic data, combined with better-than-expected second quarter earnings, trumped the geopolitical worries,” Mr. Ricanelli noted. As a result, this unrelenting, uninterrupted bull run in stocks continued throughout the month of August. For the week, the DOW rose 97 points, or 0.6 percent, to 17,098; while the S and P 500 climbed 15 points, or 0.75 percent to 2003.37; and, the NSADAQ advanced 42 points, or 4 percent, to 4,580.27. For the month, the DOW was +3.7 percent, the S and P 500 was +3.8 percent, and the NASDAQ was +4.8 percent. A pace that isn’t sustainable. For the year, the DOW is +3.15 percent, the S and P is +8.39 percent; and, the tech-heavy NASDAQ is +9.67 percent. I am modestly outperforming the indexes, up just under 13 percent year-to-date.
No Need To Fear September
Mark Hulbert, Editor of the Hulbert Financial Digest, had an article in this weekend’s Wall Street Journal, with the title above. He writes that “if a stock market selloff is coming, September might appear to be a likely time for a start. Over the past century,” he notes, “September by far, has been the worst month on the calendar for the DOW, with an average loss of 0.8 percent. That contrasts with an average gain of 0.8 percent in the other 11 months,” of the year.
This track record [for September], Mr. Hulbert notes, “prompts some short-term traders to sell stocks as September approaches; or, to postpone investing cash they have accumulated,” waiting for a better entry point. “This year, concern is particularly heightened, because it has been three years since a [stock] market correction, defined as at least a 10 percent decline. The historical average is one correction every 12 months, or so,” — so, we’re long overdue.
“But, a closer look,” Mr. Hulbert contends, “shows a drop is no more probable this September than it was earlier this year — or, will be in the coming months. Over the past century, when the DOW was sporting a year-to-date loss in the DOW, through the end of August, it proceeded to lose 2.7 percent on average in September; and, fell in the month more than two-thirds of the time. By contrast, when the DOW had a year-to-date gain through August [as we do now], it gained an average of 0.3 percent in September; and, rose as often as it fell.”
“The implication for most investors,” Mr. Hulbert concluded, “is that they should stick with whatever stock allocations they have concluded is appropriate for January, or May, or any other month. In other words, if you had 60 percent of your investments in stocks heading into August, chances are that is a reasonable allocation for September too.”
Exact Sciences’ (EXAS) Cologuard Cancer Test Debuts
On Friday, I bought shares of EXAS at around the $20 mark, as I like the company’s stock — even though it has already seen a stellar run in recent months. In this weekend’s Barron’s, Canacord Genuity reiterated its buy rating on the company’s shares, noting “the Mayo Clinic is the first health-care system to adopt Cologuard, a colorectal-cancer screening test. While this deal is positive, Canacord notes, “we think the bigger opportunity is the likelihood for additional systems to come onboard, as the publicity raises awareness among primary health-care providers and doctors.” The Mayo Clinic, of Rochester, Minnesota, said that “this new screening technology, will be a “game-changer,” that will “revolutionize” the system, by getting more people tested earlier,” said Doctor Vijay Shah, Mayo’s Chairman of Gastroenterology and Hepatology. “It therefore saves lives,” Doctor Shah said.
This weekend, Judy Newman, writing in the Wisconsin State Journal, writes that Cologuard, Exact Sciences new test for [colon] cancer, — requires little more from patients than simply having a bowel movement — will revolutionize the testing process experts say, by offering a viable alternative to the [traditional] colonoscopy.”
EXAS is seeking approval from the European Union; and, could begin marketing Cologuard in countries such as Germany in the first quarter of 2015,” said analyst Brian Couillard of Jeffries and Company wrote in July. Use of Cologuard overseas, could surpass even the U.S. market,” said and analyst with R.W. Baird.
Cologuard itself, shows “50 percent sensitivity” to esophageal cancer, and Exact’s “pancreatic development indicates an 88 percent cancer detection,” Canacord Genuity’s analyst Mark Massaro wrote on August 26.
All this, is the main reason I took a pretty big position [for me] — about 6 percent of my investible portfolio into EXAS. Alas, there are no guarantees. Be sure to do your own due diligence and understand that investing in bio-pharma requires a high-risk tolerance. V/R, RCP