Front Range Financial Consulting

The continuing uptick in the financial market averages during the third quarter of 2009 charmed those investors and analysts who expect a new bull market to emerge from the ashes of the last. It should be pointed out that large percentage increases may look somewhat less impressive when you consider they are calculated against low points. Nevertheless, the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) registered its best quarter since 1998 and its best third quarter in 70 years.

Some market observers wonder whether the economic data justify rising market values, but a combination of investor optimism and a continuing series of less-than-catastrophic reports on the economy spurred the market surge. For the record, the Dow finished the quarter at 9,712.28, a gain of 1,265.28 points or 15% since the close on June 30. During the same period, the NASDAQ Composite (an unmanaged index of all common stocks listed on the NASDAQ National Stock Market) rose to 2,122.42 for a gain of 15.7%, and the S&P 500 (an unmanaged index of 500 widely held stocks) finished September at 1,057.08, up 15% over its close of 919.32 on June 30.

Abroad, while Asian markets endured a lackluster quarter, European markets generally were upbeat. London’s FTSE 100 blue-chip index (an unmanaged index of the 100 most highly capitalized UK companies) rose 21%, its best quarter since it was launched in 1984. The figure far surpassed the forecasts of analysts who responded to a Reuters’ poll in June.

Certainly, it was a notable third quarter. In mid-September, as commentators were marking the first anniversary of Lehman Brothers’ disappearance, Federal Reserve Chairman Ben Bernanke said the recession, which began in December 2007, is probably at an end.

While retail and housing industry figures were not always encouraging during the quarter, neither were they disastrous. The jobless rate edged up to 9.7%, and analysts seem to agree that economic recovery is unlikely to quickly relieve unemployment.

In other markets of interest, gold, valued by some as a hedge against inflation, continued to rise as the quarter ended, with December futures rising above $1,000 an ounce. Oil prices fluctuated within a relatively narrow range in tandem with economic data. When it was announced that the gross domestic product (GDP) contracted at a 0.7% annual pace during the April-June quarter (less than the forecast 1%), the price for November delivery of light, sweet crude oil moved up to just above $70 a barrel as the prospects for higher U.S. sales brightened slightly. Gasoline prices at the pump fell as the quarter ended after rising slightly during the summer months – and they were generally far below prices in September last year.

Concerned citizens continued to put money away for a rainy day, although the monthly savings rate dropped from 6% in May to 4.2% in July, the latest figure available from researchers at the St. Louis Fed. Analysts praise the savings rate while pointing out its negative aspects – that those savings could be spent on goods and services that would drive job and economic growth.