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.