The major indices suffered another losing week last week, and September easily lived up to its reputation as a bad month for stocks. However, it seems that the decline has been halted for now, assisted by a lower reading on key inflation numbers and a last-minute resolution to the stand-off in the U.S. Senate regarding the fiscal budget. The agreement that was reached means that a government shutdown has been averted - but it is a temporary deal only and will last for the next 45 days.
It is possible we could see a minor bounce in the stock indices. Historically speaking, October has been a mixed bag for stocks. The month of October has frequently heralded a positive shift after a rough ride in September, yet it has also been home to some notorious crashes, such as the Bank Panic of 1907, the Great Crash of 1929 and Black Monday in 1987.
With all the doomsday sayers that have been airing their concerns in recent months, a lot of the negative sentiment may already have been built into the markets. On the other hand, the macro perspective on the economy does not give us much reason for hope. The PMI numbers (Manufacturing & Service) plus NFP data on Friday will provide important clues to the present state of the U.S. economy.