3rd Quarter in Review
A Quick Summary of Economies and Markets
Through three quarters, there is much to celebrate this year for a stock market investor. We have witnessed a second consecutive quarter of amazing gains from the March 9 lows. Let’s hope the fall earnings season and fall’s economic indicators inspire more such advances.
The third quarter of 2009 was spectacular for stocks, and it may have included the end of what history will apparently recall as the Great Recession. The S&P 500 gained 15.61% in 3Q 2009 after a 15.22% gain in the second quarter. The Dow just had its best quarter since 4Q 1998.1,2 Federal rebates and credits help to stimulate home and auto sales. The data stream from the housing sector was mostly positive. President Obama’s vision of health care reform met with great public and Congressional contention. Watching the nightly news, the average American may have assumed we were still in the midst of the recession; economists, however, saw increasing signals that it was done.
As the quarter drew to a close, evidence hinted that the economy was growing. The Institute for Supply Management’s September service-sector index came in at 50.9 for September – that’s right, expansion. (It had contracted in every month since October 2008.) The ISM’s manufacturing index was above 52 in both August and September, another growth signal.3 Consumer spending increased in August by 1.3% after a 0.3% gain in July (credit some of that to the government’s C.A.R.S. program, which the Transportation Department estimated led to 690,114 new auto sales).4,5 In fact, retail sales jumped 2.7% in August (+1.1% excluding autos) after going -0.2% for July.6 As for inflation, the big news was negative news – in September, we learned consumer prices had dropped 1.5% from August 2008 to August 2009. (However, core CPI advanced 1.4% during that stretch.)7
The Conference Board’s index of leading economic indicators (signals that are supposed to hint at the state of the economy 6-9 months ahead) rose 0.6% in August, and that was the fifth straight monthly increase.8 The Federal Reserve’s September Beige Book found that 11 of 12 Fed banks reported regional economies stabilizing or growing.9 The Fed held interest rates steady during the quarter, as expected. The jobless rate was 9.4% in July, 9.7% in August, and 9.8% in September.10
Don’t you wish stocks behaved like this in every quarter? The Dow and S&P 500 posted coincidental 15.61% quarterly gains and the NASDAQ beat them both. The DJIA, S&P 500, NASDAQ and Russell 2000 all posted gains for the second straight quarter, and that hadn’t happened in two years.2
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
In the Eurozone, the benchmark PMI was climbing, heading north to 48.2 in August and 49.3 in September – edging toward expansion after 16 months of contraction. Industrial output increased for the second consecutive month in September, as business inventories decreased for the second month. The EU administered a stress test to 22 major banks; all got the all clear. The EU jobless rate was 9.6% in August, .1% below the U.S. rate.12,13,14
The International Monetary Fund upped its growth forecast for China and India during the quarter, predicting 2009 growth of 7.5% and 5.4% for those economies. It raised its 2010 forecast for those nations, foreseeing growth of 9.0% in China and 6.4% for India. Data showed that the economies of Singapore and China respectively grew 20.7% and 7.9% in 2Q 2009. The economies of Brazil and Japan had started growing again – GDP was +0.6% for 2Q 2009 in Japan, and it was +1.9% for 2Q 2009 in Brazil.15,16,17,18
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Source: Morningstar
Sincerely yours,