Market Talk

Not only did the highly anticipated September swoon never come to fruition, the stock market surged to historic proportions.

U.S. stocks defied expectations all month to register their biggest September rally since 1939 and best quarterly performance of the year. The Dow Jones Industrial Average rose 7.7% in September, traditionally the worst month of the year for equities. All of its 30 components rose this month, with Caterpillar Inc. (CAT), Alcoa Inc. (AA) and Home Depot Inc. (HD) powering the Dow’s gains.

The Dow rose 773.3 points during the September surge, its biggest monthly point gain since October 2002 and fifth-best September ever, while also pushing the blue-chip index into the black for 2010. The index is up 3.5% this year. Of the previous 68 years when the measure was up after three quarters, it continued to rise 71% of the time and ended the year in the black 94% of those years.

September typically isn’t a kind month for equities investors. Excluding 2010, the Dow, over its entire history, has averaged a 1.2% drop in September and has fallen 58% of the time. But this marks the second year in a row and fifth out of the last six in which the index has posted positive returns.

The outsized gains have been largely attributed to a plethora of improving economic data that have coincided with a decline in chatter on potential double-dip inflation. Widespread expectations that the U.S. Federal Reserve is prepared to pull the trigger on additional stimulus measures have also propped up the stock market.

“All we needed was the economic data to stabilize and the Fed to raise their hand and say, “Not on my watch,’” regarding deteriorating economic conditions, to prompt the rally, said Barry Knapp, head of equities portfolio strategy at Barclays Capital.

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US stocks close out a big September with a whimper, dropping modestly amid some tepid signs on the economic front.

DJIA slips 47 to 10788, but gains 7.7% for its second-best September ever, and 10% in the 3Q. S&P 500 eases 4 to 1141, Nasdaq Comp loses 8 to 2369. It was a good quarter for gold (up 5%) and other commodities, but not for the dollar, which got beaten like a rented mule. Crude rose 5.7% this quarter, up more in percentage terms than gold, although it didn’t seem to rise very much. Currently just under $80/barrel at $79.97. We wonder what’ll happen if crude starts taking off.

Jobless claims fall, and GDP gets revised higher, but the numbers still point to a weakened, struggling economy. Moving into the fourth quarter, and the big holiday selling season, the economy is growing, but not enough to overtake the economy’s problems.

On a housekeeping note, we’re moving this site over to an a new platform overnight. It should be seamless and you shouldn’t have any problems, but if you do, you know why.

I meant to highlight this earlier this week, but just got caught up in all manner of other things. Still, this week’s must read is Barry Ritholtz’s post at The Big Picture, “The Left-Right Paradigm is Over: It’s You Vs. Corporations.” Ritholyz says the old left-right split, a clear fault line since the heyday of Abbie Hoffman, has been replaced by a new fault line. If you’re a CEO, you may want to avert your eyes:

We now live in an era defined by increasing corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there is massive concentrations of wealth and influence, there will be abuse of power.  The individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.

This may not be a brilliant insight, but it is surely an overlooked one. It is now an individual vs. corporate debate – and the humans are losing.

Everybody plays this left-right split like it’s Monday Night Football. We cheer and root for “our team” to win, win elections, win debates, just win. The right has a rally in Washington. The left has a rally in Washington. All the problems in the world are seen through this prism and the other side is always at fault. It’s an easy, familiar split, something even media pundits can grasp.

But that left-right split is just not the important one anymore. It’s not the fault line that matters.

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Time to wave our geopolitical-risk warning flag once again, as the Dow Industrials aim to finish the month up about 8% and seem to be itching to soon summit the 11000 mark again.

As we’ve pointed out a number of times during the past 15 months or so, investors here in the US have been so absorbed by our own domestic economic melodrama that they’ve paid little or no heed to potential threats from overseas.

Sure, we had that brief nervous breakdown in the spring when the Euro-zone looked as if it might crumble, but otherwise there hasn’t been so much as a whiff of geopolitical risk priced into stocks, for a long, long time.

But the risks are clearly out there. The latest to stir is increased tension with Pakistan after a NATO helicopter attack killed three Pakistani border guards.

Our fight in Afghanistan against the Taliban and al-Qaeda isn’t going too well, partly because our enemies there tend to operate with impunity just across the border in Pakistan, and are able to move back and forth without much hassle from the Pakistanis.

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So, hmm, looks like that stellar September is getting a little clipped here today, but regardless stocks staged an impressive rebound in September. You can, and should, question its real sources and how long it will last, but right now, it is what it is.

Still, the data this morning weren’t exactly supportive, and you wonder if at some point the market will succumb to plain old reality.

Gone are the cares of life's busy throng, Beautiful dreamer, awake unto me.

If you ever needed proof that the market believes what it wants to believe (not that you don’t get it on a near-daily basis anyhow,) today would be one of those Exhibit A kind of days.

The futures are pointing to a solidly “up” opening, with Dow futures up 53. They were lower before 8:30 a.m. when a couple of data points hit the tape. Must’ve been some bang-up data to spark a rally, right?

Er, no.

Initial jobless claims slid 16,000, to 453,000. This was greeted as good news, but it’s really no news. Initial claims have been stuck at roughly this level all year. It’s good only in that it didn’t move higher, back toward the recent high of 500,000. That 453,000 level indicates no improvement in the jobs market. Additionally, another 250,000 some-odd folks fell off the edge of the proverbial cliff, i.e., they exhausted their last batch of emergency claims and are now on their own. How many of them do you think found jobs? Add some bodies to the 99er wood pile.

Then there was the GDP report. This was the third estimate of 2Q GDP, which used to be called the “final” estimate, but the BEA changed the language on that recently; there is no final reading on GDP anymore. Anyhow, the latest is that GDP rose 1.7% in the second quarter, a tick higher than the second estimate of 1.6%. That is a negligible change. There wasn’t anything in those reports worth getting excited over.

But regardless, the stock market’s in full-on, heads we win, tails we win mode.

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Premarket bias is slightly lower for stocks, European markets are down a little and Asian stocks were mostly lower overnight.

Euro’s still sturdy, recently at $1.364as the dollar continues to sell off. Economic data calendar begins to heat up, with weekly jobless claims and a third look at 2Q GDP both due at 8:30am ET. Chicago PMI set for 9:45am ET, and Bernanke scheduled for some testimony on Dodd-Frank around 10:00am. Kansas City Fed’s Sept manufacturing survey due at 11:00am.

Gold still pressing higher, oil also up. S&P futures down 2.60; 10-yr note higher, yield at 2.47%.

Should be interesting to see if stocks adhere to the bad-news-is-good-news mindset if we see more ugly data today. Considering comments yesterday from Philly Fed’s Plosser, it may be overly presumptuous to expect QE II on weak economic data alone. As a weapon, QE will only be effective on deflation.

Conversely, if the data today is better than expected, should we expect stocks to selloff on lower expectations for more QE?

Doubt it.

- Facebook and Skype are poised to announce a major partnership that integrates SMS, voice chat and Facebook Connect, Kara Swisher reports at All Things D, . Move is a “big win” for Skype and makes sense for Facebook, especially since it helps its international push and overall goal “to mesh communications and community more tightly together,” Swisher says.

- Some unintended consequences come from the Fed making it clear it won’t abandon its ZIRP policy anytime soon, Yves Smith writes at naked capitalism. “I’d feel a lot better if we’d forced more clean-up of bank balance sheets, in particular write-down and restructuring of loans, so that we would be on a path to getting the banks off the official dole.”

- Pundits seem fixated on picking out the next Black Swan event, and Josh Brown at The Reformed Broker, frankly, sounds tired of it. “Sometimes, it’s just an ordinary Black Duck,” Brown says. “A negative event or possibility that is processed and dealt with, that doesn’t necessarily lead to contagion, panic and meltdown.” Don’t dismiss warning signs, he says, but “the more we learn not to get hysterical over every Black Duck, the better the chances are that when the real things comes along, we will be cogent enough in our reaction to them.”

- The unofficial start to earnings season is around the corner, but Forbes blogger Sy Harding notes the 3Q earnings “warning” period — already underway — isn’t providing positive clues. Harding notes 112 of the 500 companies in S&P 500 have issued pre-announces — 34 have said their results will beat analysts’ estimates, while 78 have said they won’t. “That 2.3 to 1 ratio is running considerably more negative than the second quarter earnings warning period,” Harding says. If the trend carries over, it could be one disappointing reporting season.

- Non-voting Fed member Charles Plosser said additional asset buying won’t speed up a recovery in the labor market and, conversely, could actually damage the Fed’s credibility. “If one thing is for certain, the debate in the Fed leading into the November FOMC meeting will be heated over the decision whether to continue to push the envelope with monetary policy,” says Peter Boockvar, a Miller Tabak equity strategist. “While Plosser’s comments are welcome from my point of view, the voting members have a much more dovish slant.”

- There’s a reason this “recovery” doesn’t exactly feel like a true recovery; it’s merely a “statistical illusion,” Mish says. He notes government spending extracted from GDP doesn’t paint a recovery picture. “All this talk of a ‘recovery’ is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending.”

- With 3Q earnings season kicking off next week, Bespoke Investment Group notes the financial sector is expected to see biggest quarterly earnings growth. Financials earnings estimated to rise 48% from last year, while industrials, tech, energy and materials also are expected to outpace the broader S&P 500.

- “Despite what we hear — the recession is over and the upside is ‘easy’ — let me tell you something you already know: it’s not easy and it ain’t over,” Todd Harrison writes at Minyanville. “I consider myself an optimistic realist, meaning I hope for the best but call it as I see it. I foresee another side of the financial storm before the epitaph is written on this Great Recession.”

- Goldman Sachs (GS) CEO Lloyd Blankfein issued a veiled warning today that GS could sidle out of Europe if regulatory crackdowns get too harsh, FT reports.

- Google (GOOG) must do whatever it takes to buy Twitter, Henry Blodget writes, in his long-standing advocacy for such a deal. “Whatever it costs Google to buy Twitter today is worth it.”

She may just stay in port, folks.

Indecisive, choppy trading leaves stocks modestly lower in a session where the biggest influence was movement of EUR/USD.

Dollar abused again, euro parked above $1.36 and major US indexes seemed to mime every twitch and jog by EUR/USD. Materials, financials lead sector decliners, while energy and tech end in positive territory.

Lots of data coming tomorrow and Friday; comments from Fed officials today seemed to suggest bad economic data alone won’t warrant QE2 — only specter of worsening deflation will bring out the big guns. Philly Fed’s Plosser said as much, noting that beyond cutting rates (which is over and done with), the Fed can’t do much to help the labor market, and the central bank’s credibility is on the line if more asset buying fails to create the desired effect.

Weekly jobless claims, a third look at 2Q GDP and more regional manufacturing gauges all due tomorrow.

DJIA slips 22.86 to 10835.28, and Nasdaq Comp falls 3.03 to 2376.56. S&P 500 ends 2.97 lower at 1144.73.

(Photo courtesy of Wiki Commons.)

Let's just remove 'vampire squid' right here.

I’ve long thought that advertising is the most important industry in America, and that’s not just because I’ve seen every episode of “Mad Men.” No other industry is tasked with the all-important task of getting people to spend money they may or may not have on products that almost never need, or may even be harmful to them. That’s quite a task, but year in and year out, America’s ad men get us buzzing over all manner of nonsense, and spending money like drunken sailors.

Which brings us to a very special Market Talk snippet that ran on the Broadtape today. Apparently, Goldman Sachs, perhaps you’ve heard of them, embarked upon an advertising campaign (along with a spiffy website) to clean-up its image with the masses. They bought a full-page, full-color ad in today’s Journal (page A7), bragging about how through its expertise in the capital markets it helped some wind company create, you know, windmills, and…wait for it…jobs!

Goldman Sachs, progress is everyone’s business. Makes you feel warm all over, doesn’t it?

Needless to say, we had a lot of fun trying to come up with a headline for this one. An item like this is a cynical headline writer’s nirvana. Most of our ideas were unprintable. What we finally came up with was printable, and we thought, hey, let’s have some more fun.

So, dear readers, today’s challenge is to come up with the sharpest, wittiest headline for the following item. Be creative but keep it clean (dashes and symbols are acceptable,) this is a family blog. Submit your headlines in the comments below. Winner gets a t-shirt (okay, that’s not true. We don’t have t-shirts. The truth is the winner gets absolutely nothing. But if we had t-shirts, we’d give you one.)

Here’s the item:

MARKET TALK: Oh, We Know Who You Are

12:20 (Dow Jones) Goldman Sachs (GS) rolled out a new advertising campaign today designed to clean up its image by showing how it promotes business growth and job creation by financing companies, governments and institutions. The full page ads, which depict wind turbines and a hard-hat wearing worker, ran in the Wall Street Journal and New York Times and are set to run in other national and regional papers, including USA Today. GS, which has taken a public and political beating in the last year, is using the ads to explain “who we are and what we do,” a spokesman says. GS down 0.7% at $143.93. (liz.moyer@dowjones.com)

Don’t leave us hanging, Raymond, Tyler, J., Brad, Beverly and everybody else.