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Monthly Economic Update- October

October 14th, 2010 Posted in Monthly Economic Update

QUOTE OF THE MONTH:

“Be sincere; be brief; be seated.”
 – Franklin Delano Roosevelt

 MONTHLY TIP:

Talk about money once a month with your spouse. Only via communication can you set financial goals and create a general spending plan. Spending ten or twenty minutes on this will be well worth it.

MONTHLY RIDDLE:

When can you add two to eleven and get one as the correct answer?

Last month’s riddle:
Tom’s mother has four children. Each was born exactly one year and one month apart from the previous child.

The first she named April, the second May, and the third June. What did she name her fourth child?

Last month’s answer:

Tom.

THE MONTH IN BRIEF
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.1 Gold futures cracked the $1,300 ceiling. President Obama offered a new platform of tax initiatives for Congress to consider and signed a bill designed to help small businesses. Legislators debated the merits of extending the Bush-era tax cuts for the wealthiest Americans. 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.2,3

 

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.4 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.5,6

 

In Washington, legislators debated extending the EGTRRA and JGTRRA tax cuts of the previous decade. The President and most Democrats wanted the cuts extended to all but the highest-earning Americans; many Republicans preferred that they be preserved for all Americans. President Obama also proposed a 100% expensing credit for businesses and making the R&D tax credit permanent. 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 liberal view, the bill offered businesses a lifeline in a tough economy; in the conservative view, it merely offered them a chance for more debt.7,8

 

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.9,10

 

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.11

 

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.12 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.13

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.14,15

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.16,17

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 78.79.18,19,20

REAL ESTATE
The August report from the National Association of Realtors communicated that 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%.21,22

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%.23

LOOKING BACK…LOOKING FORWARD
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.1

% CHANGE Y-T-D 1-MO CHG 1-YR CHG 10-YR AVG
DJIA +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 9/30 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.75% 1.56% 1.78% 4.03%

 
Source: cnbc.com, bigcharts.com, ustreas.gov, bls.gov – 9/30/101,24,25,26

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

We have some guarded optimism on Wall Street; do we have momentum? The fall

earnings season kicks off on October 7 (with Alcoa, to be precise), and we’ve got a fresh jobless report on October 8. (Economists polled by Briefing.com see joblessness moving north slightly to 9.7% for September; will the Fed take action if the number is higher?) So October opens with a lot to digest. You know the old saying: past performance is no indication of future results. 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.27,28,29

UPCOMING ECONOMIC RELEASES: Looking ahead, we have the September jobless report and August wholesale inventories (10/8), the minutes from the Fed’s 9/21 policy meeting (10/12), September PPI (10/14), September CPI and retail sales, August business inventories and the preliminary October University of Michigan consumer sentiment survey (10/15), September industrial output (10/18), September housing starts and building permits (10/19), the Fed’s October beige book (10/20), the Conference Board’s September leading indicators (10/21), September existing home sales (10/25), the August Case-Shiller home price index plus the Conference Board’s October poll of consumer confidence (10/26), September new home sales and durable goods orders (10/27) and advance 3Q GDP (10/29). October’s ISM manufacturing index and the September consumer spending figures arrive on November 1.

«RepresentativeDisclosure»

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Hang Seng Index is a free-float capitalization-weighted index of selection of companies from the Stock Exchange of Hong Kong. The Bovespa, the benchmark stock index of Brazil, is the second largest in the Americas, and the leading exchange in Latin America. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The RTS Index (RTSI) is an index of 50 Russian stocks that trade on the RTS Stock Exchange in Moscow. The Mexican Stock Exchange (BMV: BOLSA) is Mexico’s only stock exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Irish Stock Exchange (ISE) is Ireland’s only stock exchange and has been in existence since 1793. NASDAQ OMX Iceland, or ICEX, was established in 1985 as a joint venture of several banks and brokerage firms on the initiative of Iceland’s central bank. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. www.montoyaregistry.com www.petermontoya.com

Citations.

1 – cnbc.com/id/39444625/ [9/30/10]

2 – online.wsj.com/article/BT-CO-20101001-706591.html [10/1/10]

3 – forbes.com/2010/09/24/durable-goods-housing-markets-equities-new-home-sales.html [9/24/10]

4 – cnbc.com/id/38988946 [9/3/10]

5 – news.blogs.cnn.com/2010/09/28/consumer-confidence-drops-but-stocks-rise/ [9/28/10]

6 – bloomberg.com/news/2010-10-01/u-s-consumer-confidence-declines-less-than-forecast-michigan-index-shows.html [10/1/10]

7 – washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091600568.html [9/16/10]

8 – seattletimes.nwsource.com/html/nationworld/2012920552_smallbiz171.html [9/16/10]

9 – marketwatch.com/story/us-aug-cpi-up-03-core-rate-unchanged-2010-09-17 [9/17/10]

10 – marketwatch.com/story/wholesale-prices-climb-04-in-august-2010-09-16-847400 [9/16/10]

11 – businessweek.com/news/2010-10-01/u-s-stocks-rise-as-consumer-spending-confidence-boost-outlook.html [10/1/10]

12 – money.cnn.com/2010/09/30/markets/world_markets/ [9/30/10]

13 – foxbusiness.com/markets/2010/09/23/euro-zone-flash-pmi-falls-optimism-rises/ [9/23/10]

14 – businessweek.com/news/2010-10-04/most-asian-stocks-rise-on-china-growth-hopes-japan-banks-fall.html [10/4/10]

15 – fxstreet.com/fundamental/analysis-reports/weekly-economic-and-financial-commentary/2010-10-04.html [10/4/10]

16 – emerginvest.com/WorldStockMarkets/Countries.html [10/1/10]

17 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [9/30/10]

18 – bullionpricestoday.com/2010-third-quarter-gold-silver-platinum-and-palladium-prices-soar/ [9/30/10]

19 – blogs.wsj.com/marketbeat/2010/09/30/data-points-energy/ [9/30/10]

20 – online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY [10/1/10]

21 – marketwatch.com/story/new-home-sales-flat-in-august-2010-09-24 [9/24/10]

22 – news.yahoo.com/s/ap/20101004/ap_on_bi_ge/us_pending_home_sales_3 [10/4/10]

23 – freddiemac.com/pmms/release.html [9/30/10]

24 – bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=9%2F30%2F09&x=0&y=0 [10/4/10]

25 – ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [9/30/10]

26 – treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [7/12/00]

27 – online.wsj.com/article/BT-CO-20101004-710385.html [10/4/10]

28 – briefing.com/Investor/Public/Calendars/EconomicCalendar.htm [10/4/10]

29 – online.wsj.com/article/BT-CO-20101004-710385.html [10/1/10]

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