Why September 2010 Was the Best September in 71 Years

Who would have guessed the market would turn around in September? Against the historical norm, that is precisely what happened: the S&P 500 soared 8.76% for the month to go +10.72% for the quarter and +2.34% for the year.(source) Gold futures cracked the $1,300 ceiling. Legislators debated the merits of extending the Bush-era tax cuts for the wealthiest Americans, yet failed to provide American citizens with any clue as to income tax rates for 2011. The housing market seemingly couldn’t get any worse – and it didn’t. Consumer spending increased a bit more than consumer prices.

DOMESTIC ECONOMIC HEALTH

The latest Commerce Department data showed solid gains in personal spending (+0.4%) and personal income (+0.5%) for August, surpassing the forecasts of economists polled by Dow Jones Newswires. Some of those August gains probably reflected the extension of jobless benefits, but the fact was that consumer spending had increased by 0.4% for two straight months. Assuming some healthy spending, what were people spending their money on? Perhaps durable goods. While overall orders of hard goods slipped 1.3% in August, durable goods orders actually increased by 2.0% with the volatile transportation sector factored out.(source)(source)

The unemployment rate signifies the economy to many Americans, and the jobless rate for July ticked up to 9.6%. The bright spot: the private sector added 67,000 new jobs, more than the 41,000 analysts had forecast.(source) Still, consumer morale was wavering: the final September University of Michigan survey slipped to 68.2 from a final August reading of 68.9, while the Conference Board’s consumer confidence index slumped to 48.2 for September from 53.2 the preceding month.(source)(source)

In Washington, legislators debated extending the EGTRRA and JGTRRA tax cuts of the previous decade. Most Democrats wanted the cuts extended to all but the highest-earning Americans; many Republicans preferred that they be preserved for all Americans.  The President also signed a small business jobs bill primarily designed to create a $30 billion fund to encourage business loans at community banks. In the democratic view, the bill offered businesses a lifeline in a tough economy; in the conservative view, it merely offered them a chance for more debt.(source)(source)
Inflation was no threat yet. The Consumer Price Index rose 0.3% in August, and the Producer Price Index advanced 0.4%. However, core CPI was flat in August while core PPI increased just 0.1%. The 12-month picture showed core CPI up 0.9% and core PPI up 1.3% since August 2009. The Federal Reserve stayed pat on the key interest rate but offered vague hints of quantitative easing to come in the months ahead.(source)(source)
The key purchasing managers index in the U.S. signaled slow-to-moderate growth in the manufacturing sector. The Institute for Supply Management’s manufacturing index came in at 54.4 for September, the slowest pace of expansion in 10 months.(source)
GLOBAL ECONOMIC HEALTH

At the end of September, Moody’s downgraded Spain’s credit rating a notch to Aa1, just as Ireland’s central bank announced a $40+ billion bailout of a key private bank, a move that would swell the country’s deficit to 32% of its GNP.(source) Those anxieties aside, the closely watched Markit purchasing managers index slipped to 53.6 in September – that still meant expansion, but it was also the lowest number in seven months, mirroring the development in the monthly ISM survey stateside.(source)
Turning to Asia, China’s manufacturing PMI hit a four-month peak in August – and its service sector also expanded thanks to boosts in personal spending and construction spending. For the other side of the coin, there is always Japan – a new Wells Fargo report showed that nation’s retail sales down 1.9% from a year ago, its exports diminishing and its industrial output down for the third straight month. The yen hit a 15-year high versus the dollar last month, which did not help.(source)(source)


WORLD MARKETS

All but a handful of global indices posted gains in September. Argentina’s MERVAL and India’s SENSEX made double-digit advances (+13.1% and +12.3%, respectively). Other notable gains: Hong Kong’s Hang Seng, +8.9%; Brazil’s Bovespa, +8.0%; France’s CAC 40, +6.5%; England’s FTSE 100, +6.2%; Russia’s RTSI, +6.1%; Mexico’s IPC All Shares, +5.2%; the German DAX, +5.1%; Canada’s TSX Composite, +3.8%. Ireland and Iceland were at the back of the pack: Ireland’s ISE went -1.0% in September, while Iceland’s OMX went -19.9%. You might guess that the MSCI Emerging Markets Index did pretty well last month, and you would be right (+10.87%). The MSCI World Index went +9.11% in September.(source)

COMMODITIES MARKETS

Metals made terrific gains last month.
How terrific? Palladium soared 13.8%, silver rose 12.3%, platinum futures went north 8.9% and gold gained 4.7%. Gold futures reached an all-time peak of $1,317.50 per ounce late last month. It was also a strong month for energy futures: NYMEX crude prices gained 11.19% while natural gas futures advanced 1.47% (a nice change of pace for that beleaguered commodity). The U.S. Dollar Index fell 5.16% in September to end the month at 78.79.(source)(source)(source)

REAL ESTATE

The August report from the National Association of Realtors communicated existing home sales had rebounded from the depths of July – they were up by 7.6%. New home sales were flat for August, according to the Census Bureau – and 28.9% beneath year-ago levels. How about August pending home sales? They rose 4.3%.(source)(source)

Mortgage rates certainly did not rise in September: Freddie Mac’s September 30 Primary Mortgage Market Survey had rates on 30-year FRM averaging 4.32% nationally (compared to 4.94% a year earlier). The 15-year FRM, the refinancer’s favorite, dropped to a new all-time low in the September 30 survey: 3.75%, down from 4.36% a year before. Rates on 5-year ARMs and 1-year ARMs respectively averaged 3.52% and 3.48%.(source)
SEPTEMBER STATISTICS

September 2010 was the best September for the Dow and S&P in 71 years. After a miserable August, the bulls quietly trotted back onto Wall Street and owned it all month. Here was how things stood at the end of the month.(source)

% Change Y-T-D 1-Mo Change 1-YR Change 10-Yr Average
Dow Jones +3.45% +7.72% +11.08% +0.13%
NASDAQ +4.38% +12.04% +11.60% -3.55%
S&P 500 +2.34% +8.76% +7.96% -2.06%
Real Yield 09/30 Rate 1-YR Ago 5-Yrs Ago 1-0-Yrs Ago
10-YR TIPS 0.75% 1.56% 1.78% 4.03%
Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov – 9/30/10 (Source)(Source)(Source)(Source)
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Guarded optimism exists on Wall Street; do we have momentum? The fall earnings season has already commenced as of October 7. A less than stellar jobless report appeared on October 8. So October opens with a lot to digest. That said, CNBC.com notes that when the S&P 500 has gained for September, a gain for October has occurred 64% of the time.(source)(source)

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