Does October have to be ‘spooky’ for the markets? by Ken Mahoney
Thursday marked the end of a quarter and the end of a month. Both turned out to be favorable for equity markets. Although September is historically one of the slowest months of the year, this September wasn’t slow at all. Last week’s slight drop followed four straight weeks of gains that allowed the month to go down as the strongest September since the days of World War II – 1939 to be exact. For the month, the S&P gained 8.8%, the Dow rose 7.72%, and the Nasdaq advanced 12.04%. For the quarter, the S&P gained 10.7%, the Dow added 10.4%, and the Nasdaq rose 12.3%, even as the U.S. economic recovery remained tepid.
A note out of Bespoke last Friday noted that "when the S&P 500 has been positive in September, the index has averaged a gain of 5.51% over the last three months of the year with positive returns 80% of the time...During mid-term elections, the average returns have been even better. When September is an up month during a mid-term election year, the S&P 500 has averaged a 3.5% gain during the month of October and a gain of 11.3% during the 4th quarter." So hopefully no goblins for October ??
Source: cnnmoney.com
Meanwhile, in a report released Friday, the Securities and Exchange Commission and the Commodity Futures Trading Commission said that a large investor – left unidentified – used automated trading software to sell futures contracts called E-minis at a time in the afternoon when the markets were already stressed, and that this action sparked the "flash crash" of May 6. The report indicates that this selloff in the futures market then spilled over into the market for individual stocks. As conditions worsened, the liquidity in the market dissolved because automated systems used by many firms paused when prices began falling severely. The ensuing plummet sent the Dow Jones industrial average down nearly 1,000 points, and briefly erased $1 trillion in market value. It was the largest one-day point drop on record.
The SEC-CFTC report detailed technical factors that led to the market turmoil, but it did not contain any specific policy recommendations that would prevent another flash crash from happening. The report has been submitted to a special advisory committee, which will eventually make recommendations to Congress related to market structure issues and incongruent trading rules across various markets.
Back in May, as an initial response to the crash, the SEC adopted a rule instituting a circuit-breaker “pilot” program for all exchanges to halt or slow down trades of a particular stock if the price moves 10% or more in a five-minute period. In September, the agency expanded the circuit-breaker program to all stocks of the Russell 1000 index as well as 344 specified ETFs. The SEC is expected to use the results of this new report to justify additional measures.
If you’re feeling ambitious, you can read the full 104 page report from the SEC here:
http://www.sec.gov/news/studies/2010/marketevents-report.pdf
Or you can check out the edited summary from MarketWatch here:
http://www.marketwatch.com/story/text-of-flash-crash-reports-summary-2010-10-01
As your financial advisors, we consider it our responsibility to understand factors that have affected, are affecting, or could affect your financial future. We also aim to educate you about such factors so that you can feel comfortable with the recommendations we make. If you ever have questions about this or any other matter, please don’t hesitate to reach out to us. We consider it an honor and a privilege to be good stewards of the assets you have entrusted to our care.
Key things to watch this week:
Monday – Factory Orders,
Tuesday – ISM Non-Manufacturing Index
Thursday – Jobless Claims, Consumer Credit
Friday – Employment Situation
Data as of 10/01/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 -0.21 2.79 11.3 -1.34 -2.02
Dow -0.28 3.85 13.9 0.49 0.17
NASDAQ -0.44 4.48 15.2 2.04 -3.55
MSCI EAFE 0.16 -0.82 2.82 -0.64 0.19
10-year Treasury Note (Yield Only) 2.61 N/A 3.19 4.33 5.78
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, Google Finance, Barron’s, djindexes.com, MSCI Barra. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
Beijing warned Washington on Thursday that economic ties might be damaged after American lawmakers escalated the conflict over China's currency controls, inching the two economic giants closer to a trade war.
Americans bought cars and trucks last month at the strongest pace since 2009's cash-for-clunkers program, giving Chrysler and Ford sharp increases – a trend that could give the industry and consumers a psychological boost in the year's final quarter, executives and economists said. U.S. auto sales jumped 28.5% in September, helping to lift year-to-date sales 10.3%.
The federal government is looking to raise corporate average fuel economy requirements to something between 47 and 62 miles per gallon by 2025, according to documents released Friday by the National Highway Traffic Safety Administration and the Environmental Protection Agency.
Personal income rose 0.5% in August, the largest increase this year, while spending by individuals remained steady, according to a government report released Friday. Personal income increased $59.3 billion, or 0.5% last month, the Commerce Department said. That's more than the 0.3% rise economists expected.
The dollar fell Friday, hitting a six-month low versus the euro, after a report showing weakness in the U.S. manufacturing sector supported investors who expect the Federal Reserve to resume large-scale bond purchases in coming months to boost the U.S. economy.
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Insert your broker/dealer disclosures here. i.e. Securities offered through “Your B/D Name Here,” Member FINRA/SIPC.
Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://technews.tmcnet.com/topics/associated-press/articles/106097-china-warns-us-currency-bill-might-harm-ties.htm
http://www.freep.com/article/20101002/BUSINESS01/10020307/1322/Automakers-post-solid-Sept.-gains
http://money.cnn.com/2010/10/01/autos/2025_fuel_economy/index.htm
http://money.cnn.com/2010/10/01/news/economy/personal_income_spending/index.htm
http://www.marketwatch.com/story/dollar-weakness-continues-on-fed-fears-2010-10-01
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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