The market recovered some of its early loss and finished the final session of the week modestly lower. For the week, the major indexes are off by around 2% with most of the losses coming from yesterday. Discomforting news continued to pour in. Nonfarm payrolls for September fell a bigger-than-expected 263K. Economists had been looking for a reading of 175K. The unemployment sits at 9.8%, in-line with expectation. But average weekly hours worked slipped to 33.0 from 33.1. The reading is the lowest in the current recession, indicating slack in the job market. Separately, factory orders for August unexpectedly dropped 0.8% while a flat reading had been expected. In short, most of the recent economic reports would disappoint some optimists that are looking for a V-shaped recovery.

Most major sectors finished the session lower led by industrial and consumer cyclical. The CRB commodity index declined 1.1%. The US dollar was mixed against all major currencies. Treasuries rose as the yields fell. The three-month US LIBOR was unchanged at 28 bps. The VIX index rose modestly. The market breath was negative on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market welcomed the new month in exactly the same way as it did to the previous month, i.e., a big sell off. By close, all three major indexes are off by more than 2% and the Nasdaq is actually giving up more than 3%. October has historically been one of the most volatile months for the equity market. Although last year’s 700-point daily average moving range is not likely to happen this time, we should get ourselves prepared for those 2%+ sessions like today. Why the sharp drop in the market? For starters, I think the market is a little ahead of itself in terms of the view towards the economic recovery. More and more investors started to believe that the upcoming recovery would be V-shaped. It is quite rare in the US history that the economy is going to go straight up following a recession as severe as the one just finished. Indeed, recent economic reports showed that the road to recover is getting bumpy in September. Second, following a 50% - plus rise in the broad market, valuation is certainly much richer now compared to several months ago. In fact, many companies are now back to 52-week highs although the earnings are still dropping. Therefore, some profit-taking amid uncertainty towards the economic recovery shouldn’t be too surprising.

Similar to the previous few sessions, we received mixed economic reports in today’s trading. The weekly jobless claims came in at 551K, higher than what analysts were looking for. Then we had the disappointing manufacturing news for September. The ISM Index came below expectation at 52.6. On the positive side, both personal income and spending for August were up and better than expected. Core personal consumption was up 0.1%, in line with expectation. Construction spending for August was also better than expected after rising 0.8% and pending home sales showed a stronger-than-expected increase of 6.4% over the previous month. Finally, the September auto sales showed a sharp-than-expected decline after the “cash for clunkers” program ended. The annual sales rate is now back below 10 million after reaching 14.1 million in August.

All 10 major sectors finished the session lower led by basic materials and financial. The CRB commodity index declined 1.5%. The US dollar was higher against all major currencies. Treasuries rose as the yields fell. The three-month US LIBOR dropped 1 bps to 28 bps. The VIX index surged 10%. The market breath was negative on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market finished the final session of the month and the quarter modestly lower. Nonetheless, it is the single best quarter for the Dow in eleven years. All three major indexes are up around 15% for the quarter. The best performing sectors are financials, materials and industrial, each of which are up more than 20% for the past three months. The September that just finished is quiet and benign to investors as well. The daily average moving range for the Dow, defined as the difference between intra-day lows and highs, is only a little more than 170 points for September. In comparison, the daily average moving range for September last year was almost 500 points or almost three times as volatile as this year’s. Tomorrow will be the start of a new month and a new quarter. October tends to be volatile for the stock market and last year, the Dow on average moved more than 700 points in each of its trading sessions in October. Although I don’t expect that kind of volatility this time, some 200-point movements should come as no surprise.

Once again the economic reports showed some mixed picture for the month of September. The ADP Employment Report indicated that 254K jobs were lost from the private sector while some on the Street had expected a reading close to 200K. But the biggest disappointment came from one of the brightest spots recently – manufacturing. The Chicago Purchasing Managers’ Index for September unexpected declined to 46.1 from 50 in August. Economists had been looking for 52.0. As we are going to get the national ISM report tomorrow, chances are it may also come lighter than expected. Finally, the final GDP reading for the second quarter was revised upwards to a decline of 0.7%. A drop of 1.2% was widely expected. 

Most major sectors finished the session modestly lower led by transportation and industrial. The CRB commodity index rose 2.9%. The US dollar was lower against all major currencies. Treasuries were mixed. The three-month US LIBOR was unchanged. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was heavier compared to the previous session.

The market gave back some of the gains from yesterday and finished the Tuesday modestly lower. We had some mixed economic reports in today’s trading. On the positive side, the S&P/Case Shiller Home Price Index showed continuing improvement in the housing sector for July, the month that saw the 20-city composite fall 13.3% from a year ago. A decline of 14.2% had been expected. However, the fact that the first time buyer credit probably supports the home prices in the past few months unnerves some investors as the credit is scheduled to expire at the end of November. In addition, the Consumer Confidence Index for September, which is a more recent report compared to the S&P/Case Shiller Index, came in at 53.1, much worse than expected. The reading was even below the previous month’s reading. That along with several previous disappointing economic reports for September indicated that the recovery may not be V-shaped as some had hoped for.  

Most major sectors finished the session modestly lower led by transportation and industrial. The CRB commodity index rose 0.1%. The US dollar was mixed against most major currencies. Treasuries were little changed. The three-month US LIBOR increased 1 bps to 29 bps. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was heavier compared to the previous session.

The market rose smartly on the first trading session of the new week. By close, all three major indexes are up by more than 1.2%. Volume, however, is on the light side due to Yom Kippur, the Jewish holiday when some market players are taking the day off. M&A activities and quarter-end window dressing are the two main reasons behind today’s performance. Over $10 billion worth of deals are announced today, which provides investors with the latest evidence that the market is returning to normal. But despite recent rally in M&A activities, the total deals made so far in 2009 are less than $500 billion in the US. Last year the number was close to $900 billion up to this point. Two years earlier and during the M&A heydays, the number was exceeding $1.2 trillion at this point. Clearly, there is still a long way to go before we can assume things are indeed “normal”. With only two sessions remaining in the quarter, some quarter-end window-dressing will be inevitable. The market is up about 16% so far in the quarter. The best performing sectors are financials, materials, industrials and consumer discretionary. Indeed, those are also the best sectors in today’s performance.

For the week ending on September 25th, all major trends continued to show bullish stances despite a 2% decline in broad market. In other words, we are still in a bull market. Small caps were doing worse compared to median or large caps. Sectorwise, Chinese new media companies and airlines were among the best performers while home builders, drybulks and farm fertilizers were lagging as indicated by our proprietary database.

All 10 major sectors finished the session higher led by financial and industrial. The CRB commodity index rose 0.6%. The US dollar was mixed against most major currencies. Treasuries rose with the yield curve flattening. The three-month US LIBOR was unchanged. The VIX index dropped half a point. The market breath was positive on both NYSE and Nasdaq. The volume was lighter compared to the previous session.