October 2009

October brought both positive and negative news. On the positive side, the US economy sent a clear signal that it has emerged from recession. During the third quarter GDP rose at a 3.5% annualized rate, its strongest in two years. On the negative side the October unemployment rate rose to 10.2%. This was the highest unemployment rate recorded in the last 26 years. This "jobless recovery" will likely present economic challenges for some time to come. The growth in GDP during the third quarter was due in large part to government stimulus. GDP growth generally follows a sustained increase in consumption. However, high unemployment rates will retard consumption growth, causing many investors to conclude that the third quarter GDP growth may not be sustainable. The Dow Jones Index recorded a positive return in October, while most other major indices declined. The declines were lead by lower quality, more aggressive sectors of the market. Those were the same sectors that advanced the most over the upturn that began this past March.  Within the fixed-income arena, short term yields were stable during the month, while yields for longer term bonds increased, and prices declined.