but This Year Might Be Different, Analysts Say Will September Be Good for Stocks? Sunday September 5, 8:51 am ET By Meg Richards, AP Business Writer NEW YORK (AP) -- Wall Street professionals know to keep their expectations in check in September, historically the worst month of the year for stocks. As summertime draws to a close, money managers are getting back to business, cleaning house, and often sending the market lower in the process. September has opened strong eight of the last nine years, but it's ended with a knock-out punch for stocks for the last five, partly because institutional traders are making end-of-the quarter portfolio changes. But some analysts, noting the market's unusual sell-off this July, question whether the pattern will hold true this year. "The normal election year pattern shows the market rallying in July and most of August, then selling off, so we've been much weaker than normal," said Tim Hayes, global stock strategist at Ned Davis Research in Venice, Fla. "The market may have already had that pre-election sell-off." During seven of the last 10 presidential races, the major indexes posted gains for September, according to the Stock Trader's Almanac. The month ended in a loss three times -- in 1972 and 1984, when incumbents ran and won, and in 2000, when there was no incumbent. Part of what drives September's typical weakness is the difficulty of assessing the outlook for third-quarter earnings following the summer doldrums. It's almost as if earnings for the entire 12-week period depend on this month, Tobias Levkovich, chief U.S. equity strategist at Citigroup's Smith Barney division, wrote in a recent note to clients. And when Labor Day falls deeper in the month, like this year, things can get even more complicated. "We suspect that there will be a fair amount of nervousness about earnings this quarter, especially if the August employment numbers ... are less than exciting," Levkovich told investors. The much-awaited data released by the Labor Department on Friday offered some promise after two months of anemic jobs growth, but it wasn't enough to electrify the market. Employers added 144,000 new jobs last month, just short of the 150,000 economists were looking for. While no one can predict which sectors will perform best in a month like this, history does offer some guidance about which areas are most vulnerable to seasonal weaknesses. On average, Levkovich found that telecommunications, utilities and healthcare have posted gains, while consumer staples, materials, industrials, information technology and consumer discretionaries have shown weaker performances. Among industries, pharmaceuticals and biotechnology have traditionally enjoyed an edge, reflecting the flight to safety characteristic of most Septembers. That might be less likely this year, because of uncertainty about how drug stocks will perform if Democratic presidential candidate John Kerry wins the election. Kerry's platform includes a number of measures that would sharply reduce the cost of prescription medications, which could dent profits at pharmaceutical companies. Those fears may already be priced into drug stocks, however. Investors have been preoccupied with a long list of worries this summer, not least of them being that the Olympics in Athens or the two political conventions could become targets for terrorism. While there is still some nervousness about the upcoming anniversary of the Sept. 11, 2001, terror attacks, the market is showing signs of shaking off this fear factor. Other concerns that loomed large midway through the summer also seem less threatening now. While global oil supply is still tight, the market seems to be slowly pricing in higher fuel prices, and reacting with less fright to fluctuations in crude prices. Anxiety over inflation -- and the Federal Reserve's strategy to curb it by tightening rates -- also seems to have subsided. At the Open Market Committee's next meeting on Sept. 21 -- its last before the election -- the policy making group is expected to raise its target for the federal funds rate by another 25 basis points to 1.75 percent, which is still low by historical standards. Simultaneously, the dollar is strengthening and corporate earnings are slowly on the rise. This comes against the backdrop of an eight-month tug-of-war between the bulls and bears as the market digested the huge gains of 2003. It may be a sign that the market's underlying fundamentals are finally catching up, said Art Nunes, portfolio manager of the IMS Strategic Allocation Fund in Bellevue, Wash. "Things are kind of converging on the month of September, such that the odds of having a higher market are very high, extremely high," Nunes said. "In the last few weeks, demand has been getting stronger and stronger, more stocks are reversing downtrends and starting to head back up, and trading volume is starting to pick up. I see demand coming back into this market."