Global stock markets had their best September in over 70 years, however the rally had more to do with the lack of bad news than advances in the economy. Economic reports saw minimal improvements, but they dissipated fears of a double dip recession. Investors also began to look past the November congressional elections with the assumption that Republicans will likely gain seats and therefore make tax increases less likely. Fed comments gave investors further confidence that they would be willing to take additional action if the need arose. Stocks bounced back from a weak August to have a very strong September and third quarter. Investors continued to move into fixed income over the quarter, but did not see the same results as earlier in the year with fixed income indices mostly flat for the month.
Several businesses related economic reports released in September edged up. Manufacturing activity surprised by accelerating in both the U.S. and China in July and business spending continued to expand in the third quarter in the U.S. Factory goods orders increased in July and U.S. industrial output continued its upward climb in August. While not overwhelming positive, these economic reports show that the economy continues to grow.
The U.S. continued to lose jobs in August for the third month in a row as the unemployment rate rose to 9.6%, however the increase was due to more people seeking to enter the workforce and not layoffs. The private sector added 67,000 jobs in August, which beat economist expectations. Fewer people applied for jobless benefits in September as the 4 week moving average dropped to 458,000. However, the number still is evidence of a weak job market.
Wholesale prices rose little in August, up 0.1% when excluding volatile food and energy prices, showing that prices continue to remain flat and are teetering close to deflation.
After the Fed’s monthly meeting they made their strongest overtures yet about taking new steps to bolster the economy if organic growth does not pick up soon. The Fed is weighing the costs and benefits of beginning another bond purchase program.
Total volume of global imports and exports fell 21% between April 2008 and May 2009, however as of June it is within 2% of its peak. The U.S. Trade deficit narrowed to $42.8 billion in July down $7 billion from a month earlier as exports increased and imports fell. Global trade has had a significant role in the recovery and the degree to which the recovery continues will rest heavily on the continued expansion of global trade.
Corporations reported a round of generally strong earnings in September, however most reports were accompanied with some negative news. Oracle, RIM, FedEx, Lennar, Adobe, and Inditex (the largest clothing retailer by revenue) all had their quarterly profit grow substantially. On the other hand, RIM added fewer subscribers than expected, FedEx expressed concern over U.S. economic growth and is cutting 1,700 jobs from a business line,
Lennar is still struggling in its core home building business and Adobe’s 4th quarter projections disappointed investors.
Regulators from around the world agreed to new global banking rules with the goal to reduce risky financial activities taken by institutions that led to the financial crisis and to prevent future crises. The new rules, which increase the amount of capital banks are required to hold on hand to guard against losses, are to be phased in over 8 years in attempt to avoid upsetting the staggering economy.
The U.S. Government stepped in to aid wholesale credit unions that were being squeezed under the weight of subprime mortgages. It includes a plan to manage $50 billion in troubled assets inherited from failed institutions. The National Credit Union Admin. plans to issue $35 billion in government guaranteed bonds that are supported by the feeble mortgage related assets.
September started off with a bang as all major stock indices shot up over 3.0% in the first trading days of the month and didn’t let up as a traditionally poor month for stocks saw one of the best Septembers ever. The Dow gained 7.9% and the S&P 500 rose 8.9% for the month of September. The strong performance from both July and September was enough to outweigh the poor results from August to send U.S. stocks up 11.5% for the third quarter. International equity was strong as well with developed and emerging markets returning 16.5% and 18.0%, respectively in the third quarter.
Due to the ongoing unease with the global recovery, gold continued to soar throughout the month settling at a record high of $1,308 an ounce to end September.
As concern over a double dip recession eased, fixed income performance for the month was flat. Returns ranged from 0.0% for Short Term treasuries to 0.9% for Intermediate Credit bonds. Yields remained low as investors continued to pile into bonds. The yield on the 10 year Treasury note rose slightly to 2.52%.
Currency trading has grown tremendously in recent years as trading has reached $4 trillion a day, up 20% since 2007. Governments became increasingly active in the space in September. Japan’s government got into currency markets for the first time in 6 years to try to abate the quick ascent of the Yen. Other active countries include China, Brazil, Taiwan and South Korea. Governments are trying to keep their currencies low to spur exports and their countries’ economies.
Index Performance – September
US Large Cap Stock (S&P 500) +8.92%
International Stock (FTSE AW ex US) +10.18%
US Broad Bonds (BarCap Aggregate) +0.11%
US Government Bond (Barclay’s Govt) +0.05%
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