Debt Burden
Ongoing concerns over the financial state of the European Union, specifically the country of Greece, caused Wall Street to close out the week and the third quarter on a somber note. Whether it was the euro-zone sovereign debt problems, the possibility of another U.S. recession, a weak banking situation, a slowdown in China, or a crummy employment outlook, stocks continued to gyrate wildly and unfortunately lower. As the third quarter finally came to an end, all we can do is be hopeful that the final three months of the year will be a reversal of fortunes as far as equity prices go. Other than that, it’s ‘good riddance’ for the month of September, and for the market’s worst quarter for stocks since 2008.
Surprisingly, the Dow Jones Industrial Average actually managed to close out the week 1.3% higher than the previous Friday’s close, and now stands at the 10,913.38 mark. However, it did fall some 1,500 points or 12.1% in the just-ended third quarter. Meanwhile, the Standard & Poor’s 500 gave up 0.44% on the week and now rests at the technically challenged 1,131.42 mark. This broader index was off some 14.3% in the quarter, the second down quarter in a month. The Nasdaq Composite finished at 2,415, down 2.7% for the week, and 12.9% for the quarter. In addition, the Russell 2000 index of smaller-cap stocks continued its weak pace and finished off the week 1.3% lower, and down an atrocious 22.1% for the third quarter alone.
Equities overall were down sharply in the month of September with key factors being the intensified concern about the European debt crisis, and the soft economic news being reported here domestically. Just take a look at the dismal readings for this past month on its own. The Dow Jones Industrial Average was down 6.0 percent for the month of September, while the S&P 500 was off by 7.2 percent. The Nasdaq finished off the month lower by 6.4 percent and the Russell 2000 was off by 11.4 percent. Not surprising, we’re more than happy to see the month end.
Given the market’s wild swings over the past couple of months, it’s become evident that we’re currently in an “all or nothing market.” Each day, the market tends to either shoot up a lot, or get hammered hard. Whenever there’s good news out of Europe or from our own Federal Reserve, we see all sectors of the market rally strongly. When the news is bad, the exact opposite happens. It’s a little like being passengers on a boat where everyone is frantically moving from side to side. There’s little in between. However, if history is any type of an indicator, things may soon be pointing upward. By mid-October, the third quarter earnings season will be starting up and we’ll get a chance to see how well corporate America did during the third three months of the year. This could just be what the market needs to finally break out of its current doldrums. One promising historical note is that since 1945, whenever the market has tanked by 10% or more in the third quarter, the fourth quarter has gained an average of 7.2%. In fact, stocks have risen in the fourth quarter nearly four out of five times during that period!
With the third quarter now over, the major equity indexes find themselves deeply in the red on a year-to-date basis, and unfortunately still trending southward on a technical basis. The Dow Jones Industrial Average is off by 5.74%; the S&P 500, down 10.04%; the Nasdaq, down 8.95 percent; and the Russell 2000, down 17.80 percent.
Treasury yields continued to remain at historical lows as of late, and in the third quarter the yield on the benchmark 10-year note fell some 120 basis points, to 1.92%. Meanwhile the 30-year bond yield plunged by 140 basis points and is now paying less than 2.91%. The good news is that mortgage rates have fallen for a fourth straight week and are now at historic lows. The average 30-year fixed mortgage is currently at the 4.01 percent mark, which is the lowest rate since the Freddie Mac government agency began keeping records in 1971. The last time long-term rates were lower was in 1951. In addition, rates on mortgages could fall further given that the Fed announced last week that it would take further action to try and lower long-term rates.
Upcoming
With respect to economic news, this week’s highlight will be Friday’s employment report. It’s expected that the jobless rate will be stuck at 9.1% and that a paltry 50,000 jobs will have been created in the month of September. Other news include the Institute for Supply Management manufacturing index on Monday, as well as Apple’s much anticipated unveiling of the new iPhone 5 on Tuesday.
As we move into autumn months, let’s hope that things take a turn for the better in both the stock market and the overall economy. However, continued volatility will probably be the norm for the foreseeable future so be sure to have your antacids ready. That being said, all of us at Money Management Services, Inc. hope you had an enjoyable and relaxing weekend. Until next week, take care!!
Sources: Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com