Monthly Market Monitor - September 2010

Housing Sales Cliff Dive Turns Investors Cautious
The Dow Jones Industrials Average experienced its worst August performance in 9-years (since 2001). It was also the Big Board’s first August decline in 5-years. Normally a positive performing month, August was characterized by a flurry of disappointing economic releases data, primarily a falloff in housing sales, that turned generalized concerns over a slowly growing economic recovery into renewed concerns for a possible double-dip recession. Coupled with no meaningful advance on the jobs front, a flight to safer investment havens drove current Treasury prices rallying higher into premium territory and yields falling precipitously. The 10-year Treasury Note’s yield-to-maturity fell to 2.47% at the end of August from July's 2.94% and 3.85% at the start of the year. Small cap stocks saw the most selling, as the Russell 2000 index posted a 7.5% pullback for its worst August in 12-years. In sector action, eight of the 10 S&P 500 sectors saw losses on the month with Financials seeing the most pain (-6.7%). Defensive sectors Telecom and Utilities managed to turn in positive August performance, gaining 2.3% and 1.9% respectively. Wall Street was most alarmed by a 27.2% record-setting decline in existing home sales to 3.83 million annualized its lowest level in 15-years. Economists had expected a decline after the stimulus expiration of the $8,000 new home buyer federal tax credit, but it was far worse than their estimate for 4.65 million homes sold.

Outlook Clouded by Mid-Term Elections
Though September’s first trading day is soaring higher (up 2.4% on the DJIA; courtesy of rebounding Chinese manufacturing), a 100-year trend shows September has been the worst performing month of the year. This as corporations typically issue earnings warnings in September ahead of 3Q results. Additionally, S&P analysis shows that US mid-term elections also place unique pressures upon September performance. Since 1930, the S&P 500 index declines an average of 1.7% in Septembers ahead of mid-term elections; and when mid-terms are held during a Democrat President's first term, the broad index retreats an average of 3.8%.

Yet this year may challenge the history books as many investment strategists believe fears for a double-dip recession are broadly overstated. They also point to increasing odds that the scheduled year-end expiration of the Bush Tax cuts may be pushed off until 2011. Additional positive catalysts are found in the flurry of M&A announcements and the encouraging year-long trend of numerous company dividend increases.

1. Wall Street Journal, 09/01/10 ; Bloomberg Professional

If you have any questions, please contact Scott Rivera, Cetera Financial Group, at (310) 257-7689.The views are those of Richard Anderson, Equity Research Director, Research Department, Cetera Financial Group, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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