That didn’t take long…

September 1, 2009

Turn the calendar to September and markets are fixated about potential problems at the banks again. The obsession with September being a bad month for stocks and for the world in general has nothing to do with it, I’m sure.

I’m certainly the last person to downplay the still tough road ahead given the state of the U.S. consumer, commercial real estate and the excesses that still need to be wrung out of the system, but the fickle trading, especially in the stock market this summer, has made it difficult to read too much into the daily moves.

But the worry does look real, at least for today, given the flows.

The DJIA and S&P 500 are down around 2% and the S&P dipped back below 1,000. Meanwhile, funds are being redirected into shorter-dated Treasuries with 2-Yr through 7-Yr yields down around 5.5BPs to 6.8BPs. The flattening of the year curve is telling you this has to do with fear, not a reach for yield (especially when the 2-Yr note is trading below 1% now.)

That this is happening on a day of solid economic data – the ISM manufacturing report not only came in much better than expected but it indicated expansion for the first time since Jan. 2008 – makes the behavior more noteworthy, even if it is coming during the last week of U.S. summer.


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