Market Report – October 1, 2012

Filed under: Investor Blogs |

In The Rear View Mirror: The end of the week also brought the end of the month and the end of the third quarter. On that note, this was the best third quarter for U.S. stocks since 2010 with the S&P 500 gaining almost 6% and the Nasdaq gaining just over that level. The Dow Jones Industrial Average tacked on 4.3% during the quarter.

However, the quarter ended on a somber note as the S&P 500 notched its worst weekly performance since June, tumbling 1.3% for the week. The other major U.S. indexes also closed in the red for the week.

And guess what? Europe is largely to blame.

That is a familiar refrain for global investors. Protests in Greece and Spain, also known as the “usual suspects,” reminded investors that all is not well in the Eurozone. The heart of the matter is that these countries, and a few others, need to make some tough choices regarding austerity, but average citizens in these nations refuse to do so. Then rioting and protesting becomes the order of the day and the result from there is usually weaker global equity markets.

The Markets @ 9/28/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13437.13 -142.34 -1.05% 1219.57 9.98%
NASDAQ 3116.23 -63.73 -2.00% 511.08 19.62%
S&P 500 1440.67 -19.48 -1.33% 183.07 14.56%
NYSE Comp 8251 -126.51 -1.51% 773.97 10.35%
NYSE MKT 2437.52 -49.72 -2.00% 159.18 6.99%
RUS 2000 837.45 -18.06 -2.11% 96.53 13.03%
RUS MICRO 326.62 -4.96 -1.50% 50.9 18.46%
VANG INTL 14.23 -0.27 -1.86% 1.17 8.96%
USX CHINA 4359.43 33.58 0.78% -170.37 -3.76%
EMERG MKTS 6623.85 -25.97 -0.39% 618.54 10.30%

Market Report

In economic news, the Commerce Department said U.S. GDP grew 1.3% in the second quarter, well below the previous estimate of 1.7%. The initial estimate was growth of 1.5%. The National Association of Realtors said its index of pending home sales fell 2.6% in 99.2 last month down from 101.9 in July. Readings above 100 are considered healthy.

Initial claims for jobless benefits fell by 26,000 last week to 359,000. Economists expected a reading of 378,000 new claims. The less volatile four-week moving average dropped by 4,500 to 374,000. The Commerce Department said personal incomes rose just 0.1% in August. The July number was revised down to an increase of 0.1%. Economists expected the August number to increase by 0.2%.

The Institute for Supply Management’s Chicago-area PMI fell to 49.7 from 53.0 in August. Economists expected a September reading of 53. Readings below 50 indicate contraction. The Thomson Reuters/University of Michigan’s final reading on September consumer sentiment climbed to 78.3 from 74.3 in August. That is the highest reading since May, but still below the reading of 79 economists expected.

China stocks ruin a perfectly good down week

Every index we follow was flowing red for the week except China-based stocks…which moved up 0.78% and have rallied in the last 60 days. The YTD loss is now down to -3.76%.

The big loser among the majors was the Nasdaq (-2.00%); the NYSE MKT turned in 2.00% loss as well.

Gold reversed itself this week…+$47.00 to close at $1,771.10

Up four weeks in a row; down one week; back up. The consensus still remains that higher gold prices are in our future and it’s just a matter of time.

The US Dollar strengthened ever so slightly against the Euro (closing at 0.7777 Euros, +.0073); the 10-year bond closed up this week at $99.922 (+$1.078) and the 30-year bond gained more ground… +2.328 to close at $98.500.

WTI Crude Oil held fairly steady this week; off only $0.70; closing at $92.19 on Friday.

The Bottom Line for Stocks

What lies ahead? Well, no one knows for sure. What is a certainty, however, is that October is a month loaded with uncertainty. On a historical basis, October has been the month that harbored the infamous crashes of 1929, 1987 and 2008. On the other hand, the tenth month of the year is where multiple post-World War II bear markets went to die.

It is also worth noting that October is the last month of the worst six months of the year for stocks and the start of the fourth quarter, which is usually kind to equities. Over the past two decades, the Dow has risen an average of 1.8 percent in October, with positive returns 70 percent of the time, Bloomberg reported, citing data from Bespoke Investment Group.

A post-election, year-end rally could ignite high-beta micro-cap sectors such as the miners, energy and technology. Financials could be an outlier, but the group should be approached with caution.

Research and Editorial Staff
MicroCap MarkePla

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