Four months remain in 2011 and who knows where we're going from here

By Dian Vujovich

Heading into the long Labor Day weekend, if kids around the country aren’t already back in school they will be shortly. And since it’s already Christmas at Costco—holiday ribbons, toys etc. on display last week—spending for the school and holiday seasons is certainly underway. What that all means for the stock markets? Well…

I receive a handful of newsletters online and in hard copy each month. In each are always a number of factoids and tidbits worth noting. What these little ditties have to do with any financial forecasting is one of those after-the-fat-lady-sings kinds of things. So until she does, we won’t know precisely what the August consumer spending numbers will be re back-to-school spending or what the future will hold on a number of other fronts.

That said, when thinking about how the markets will end 2011, consider the following:

From The Principal’s August 29th newsletter and John McKeever III, a Princor Registered Rep:

-The last time the S&P 500 returned a negative total return during the 3rd year of a presidential cycle (we’re in that now) was in 1939—72 years ago.

-On Wednesday, August 24, 2011, the Congressional Budget Office (CBO) revised the 2011 deficit estimate to $1.3 trillion. That’s down from the $1.5 trillion deficient estimate they projected on Jan. 26th. That means the deficit is now only projected to be 8.5 percent of the size of our economy and not 9.8 percent. (Source: CBO).

Now, from James Stack’s “Personal Perspective” in his InvesTech Research Portfolio Strategy newsletter dated August 26, this:

“The Dilemma Today….There are forces at work in today’s market that make analysis more difficult, and increase the challenge of remaining objective. The 77:1 ratio of declining stocks over advancing stocks on August 8 was unprecedented—even in the 1987 or 1929 crashes. And experiencing 5 of 6 days with 4 percent market moves (2-up and 3-down) hasn’t been seen since June 18, 1932…So the dilemma today is that we have:

-A possible bear market that began without any of the characteristic warning flags.

-A sell-off that was clearly fueled by fear and the near-record drop in consumer sentiment due to the political brinksmanship in Washington.

-Oversold and volatility extremes during the past couple week that are more characteristic of a bear market bottom or end of a correction than the start of a new bear market….”

And so begins September and the last third of 2011.