The Overnight Report: Thank God That's Over
By Greg Peel
The Dow rose 53 points or 0.5% while the S&P gained 0.5% to 1218 and the Nasdaq added 0.2%.
August is over. Hallelujah, pass the valium.
August 2011 has seen the S&P 500 close down 5.7% for its worst August in a decade. With a greater loading of defensives, the Dow is down 4.4% and managed to close last night up 0.3% for 2011. The month saw more 400 point Dow-swings than ever before in history. Stop the world, I want to get off.
European debt, US debt and double-dip, and a slowing China all conspired in August to provide the mayhem. The ultimate driver of the global economy ? the US consumer ? recorded a confidence measure of 44.5 this month. Excluding March 2009 (27), the last time this measure has been as low was December 1974.
According to data accumulated by Goldman Sachs, the first two weeks of August saw US$35bn of selling out of long positions by US investors, which is a record. The third week of August saw US$15bn of short positions established, which is a record. US mutual funds saw US$43bn of outflows in August, which is the third largest amount on record. Excluding the nightmare of the Lehman collapse aftermath, August 2011 has been the scariest month ever in the memory of most. October 1987 was a shock, as I recall all too well, but it was all over in a flash by comparison.
But spring is sprung and the grass is riz this morning, at least in Australia. In the rest of the world, where spring does not begin on the day the British marines in the colony were allowed to change into summer uniforms, the spring equinox is still three weeks away. A new month is nevertheless upon us, and that provides a psychological benefit as well as decision time for fund managers and investors. September is actually, on average, the worst month of the year for stocks, but then we might have had our September in August this year.
It was still the last day of the month in the US last night and Wall Street opened with a flurry, with the Dow up 153 points from the bell. Inspiring the jump was some good news out of Europe.
According to reports, the German government has secured the support it needs among coalition parliamentary members to pass the bill required for the expansion of the European Financial Stability Fund, and the cabinet is firmly behind Chancellor Merkel. There remains the issue of collateral demands from some eurozone governments, but one assumes that if Germany passes the bill then other members will fall into line.