The US stock markets ended a monthlong rally on a weak note, but still chalked up the best September in 71 years: the S&P 500 rose 8.8pc on the month and the Dow Jones was up 7.7pc.
The indexes rose sharply at the open Thursday following some better news on the economy, but stumbled at midmorning and stayed lower the rest of the day as traders pulled out profits following a spectacular run for the market in September.
The Dow Jones gained 7.7 percent in the month, making it the strongest September since 1939, at the dawn of World War II, when traders anticipated a strong rise in demand for US manufactured goods and war materials.
However that runup followed a dismal August, and the Dow is still only up 3.5 percent for the year and is 3.7 percent below its closing high for 2010 reached on April 26.
Technology shares, which have been among the best performers this month, led Thursday’s pullback. Major technology companies like Apple Inc., Dell Inc. and Google Inc. were all down about 1 percent.
“You can’t underestimate people taking profits,” said T.C. Robillard Jr., a managing director at investment bank Signal Hill. Robillard said that like most reports throughout the month, Thursday’s batch of data only confirmed that the economy is growing very slowly.
Gross domestic product, which measures the output of goods and services in the US, increased at an annual rate of 1.7pc in the second quarter and the number of Americans filing new claims for jobless benefits fell more than expected last week for the third time in four weeks.
Separately, the ISM-Chicago Business Survey rose in September to chalk up a full twelve months of expansion, showing an improvement in industrial activity in the key area.
“The jump in Chicago PMI was nothing short of shocking,” said Nick Kalivas, vice president of financial research at MF Global. “It was complemented by the drop in (unemployment) claims.”
Sentiment has been underpinned by solid company earnings, a spate of big corporate deals, poor returns from bonds as interest rates hovering around record lows, and hopes that the US Federal Reserve will step in if growth in the world’s largest economy stalls.
The FTSE 100 has joined has rally, ending the month up 6.2pc as investors looked beyond Europe’s debt woes and focused on signs that the US economy is stabilising.
London’s index of leading shares, down 20.6 at 5548.62 on Thursday, has risen 323 points since the end of last month, when fears of a double-dip recession weighed on equities.
The FTSE 100’s performance this month compares to a 4.6pc rise last September and a 13pc fall in 2008 – when the global financial system to the brink by the collapse of Lehman Brothers.
Other major European and Asian bourses also rose strongly during September. Germany’s DAX gains 5.1pc boosted by bullish consumer sentiment and strong exports. France’s CAC gained 6.1pc.
In Tokyo Nikkei 225 rose 6.18pc and Hong Kong’s Hang Seng jumped 8.9pc, although mainland China’s Shanghai Composite only edged 0.6pc higher.
“This year’s behaviour [in equity markets] is more akin to a broad consolidation phase with underlying support from earnings, which have been stronger than expected,” said Mike Lenhoff, chief market strategist at Brewin Dolphin.
He said the “recovery mometum” lost during August had returned and could continue if newsflow on the US economy stays positive and third-quarter corporate results due in two weeks remain upbeat.
“Although, we could go from under-bought to oversold,” he cautioned. He said volumes have been thin which has exaggerated moves in the market.
John Brady, senior vice-president at MF Global in Chicago, said: “We could be seeing the last vestiges of the idea that too much bad news was built into the market. We could go from being overly pessimistic to overly optimistic.”
However, there is still caution.Michael James, equity trading managing director at Wedbush Morgan Securities, said :”It would be a mistake to draw a conclusion that the market strength is a vote of confidence in a significantly improving US economy.” [via Daily Telegraph (UK) and MSNBC]