It is the time of the year when I am most fond of playing some fortune telling and applying the game of probability. It is the coming of the Lunar Seventh Month or widely known as the Hungry Ghost Festival that spooks me.
In the past decade, the Hungry Ghost Festival has never been kind to the stock market. Do not thumb your noses at me as yet.
What similarities do Trump and the hungry ghosts share? Nah, apart from the fact that both are bad for the stock markets, it is just a click bait. Some may argue that the US indices are at historical levels but we do not like uncertainties and volatilities that this Trump era represents especially in 2019.
For the Trump haters, apart from the burning of incense, paper money and effigies, we may end up seeing the paper effigy of a certain famous person who has enraged many investors by sparking off stock market corrections and volatility. So that is another similarity.
In 2018, the Lunar Seventh Month started on 11 August when the Straits Times Index (STI) closed at 3,245 points. The index went on a downward spiral closing as low as 2,972 on 26 October.
In 2017, the Straits Times Index closed at 3,263 on 22 August – the day the gates supposedly opened. For the whole of the next 30 days, the STI went as low as 3,193 and started rallying only shortly after the end of the Lunar Seventh Month.
On 3 August 2016, the STI rallied from 2,827 to as high as 2,893 within a week. However, the index started to tumble for the remaining trading days of the month and closed for the month at 2,816.
2015 was no different as the STI started its drop as early as late July. On 14 August when the Hungry Ghost Festival kicked off, the index continued to plunge from 3,114 and dipped to as low as 2,780 by late September!
The year 2014 was a rather peaceful year for the Straits Times Index was rather flat. It started from 3,356 on 27 July and closed a month later at 3,320 on 28 August.
August 2013 was yet another horrendous month for the local stock market with the index plunging from 3,229 on 7 August, which was the opening day of the Hungry Ghost Festival, to a low of 2,990 towards the end of the month. Strangely, the STI rallied strongly after the festival ended a month later. The rally started on 9 September with the index surging from 3,088 to a high of 3,251 within a mere 10-day window!
17 August 2012 marked the first day of the Lunar Seventh Month. The STI started off at 3,062 and dived to as low as 2,977 on 6 September. The index then rallied to a high of 3,088 just 11 days later on 17 September. While it was a positive month-on-month comparison, the volatility was incredible.
1 August 2011, the first trading day of the Lunar Seventh Month, marked a 6-month peak with the STI hitting an intraday high of 3,227. All was bullish and sentiment was never better for the past six months. Within the next seven trading days, the STI plunged to as low as 2,720 – a 500-point loss! The index then went on to lose another 200 points or so by the end of the following month in September.
2010 was yet another classic example of volatility for the STI having first dropped some 2%-3% starting from 10 August (first day of Lunar Seventh Month) followed by a strong rally to recover lost ground by the end of the Lunar month.
Shocked? Taken aback? Unbelievable? Coincidence?
I have no words to describe this but to speculate that certain blue-chip stocks tend to go Ex-Dividend in August which may explain the fall. We can also attribute this to programmed selling by fund managers all at the same time. I have no explanation for this peculiar phenomenon.
Hungry Ghost Festival 2019
I do apologize to Mr. Trump if he takes offend to the effigy joke and the hungry ghost joke.
If we were to link several events that could lead to yet another drop in the stock market – hopefully a mild one if any at all – then we would have to blame it on Trump!
Firstly, the gates open on 1 August 2019 and we would know by then if the Fed would cut interest rates. We shall not go into the argument about whether the Fed should or should not cut but since the hopes of a cut are sky high, then anything less than a 25 basis-point would be a disappointment. There is a likelihood of a “sell on news” whether you like it or not.
A 50 basis-point cut now looks very unlikely unless James Powell is desperate to suck up to his boss. With the economy growing more than expected and a strong jobs market in the background, a cut of that magnitude may lead to lingering questions about whether or not the Fed knows an imminent danger that the public is unaware of.
The first round of trade talks in Shanghai between the warring parties has kicked off. Expectations of any deals are so low that investors are not expecting anything good to come out of the meeting. On the contrary, this prolonged conflict possesses the ability to throw the stock markets into disarray should either side decide to flip the table and walk away.
While this possibility is not high, we cannot discount this totally.
With the US indices in record territories and the stock market priced for perfection, the sell on news factor as well as the likelihood of a disappointment from the abovementioned reasons may just trigger a correction.
A small one, if any, please.
Gabriel Gan was a Senior Vice President at AmFraser Securities. He left to join DMG Securities (now renamed as RHB Securities) to take on a similar role. During his stints at the stockbroking firms, he dealt in equities, performed advisory role and executed corporate finance deals for his clients.
Since 2001, he has been invited by the media (both Mediacorp and SPH) for his stock market opinions. On radio, he spoke on 95.8FM for more than a decade; he now speaks every Wednesday and Thursday mornings on SPH radio 96.3 FM, delivering his opinion in Mandarin. On TV, Gabriel appeared on Channel NewAsia, the former Channel U and various Channel 8 financial segments including Good Morning Singapore, Hello Singapore and MoneyWeek. On print media, he continues to give quotes and comments on the economy and stock market for Lianhe Zaobao, Lianhe Wanbao and Shinmin Daily. On top of that, Gabriel was a columnist for the now defunct My Paper.