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Updated Monday, October 11, 2010 11:08 am TWN, By Richard Quest

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September stock market rebound merely a life boat

To paraphrase that old joke, “a funny thing happened on the way to the stock market this month...” inexorably, shares went up. Actually in the case of the U.S. market that is an understatement. September, which historically is not a good month for stocks, turned into the best of the bunch. The S&P 500 had its best September since 1939! The index rose 8.8 percent. The Dow was up nearly 10 percent and is now positive for 2010.

Europe joined in with the FTSE, gaining 6 percent.

And the DAX, 5 percent during the month. A respectable performance by any usual measure except as measured against the U.S. markets.

Even Shanghai, which is down 18 percent for the year, actually rose — by just half percent.

But Tokyo made up for that, with its increase of 6 percent.

How can this be? If you follow financial news, you are being told that growth is in trouble. Protectionism is on the rise. Consumers are weak. Japan is moribund. China is slowing down. It seems odd.

Reading the analysis, there are a myriad of reasons. Firstly and most obviously — shares were beaten up in August. Look at the graphs and there were long ski slopes down during the month on all major markets as economic worries took their toll. (Dow & S&P down 4 percent in August).

Prices were cheaper and money was looking for a home. It was a case of buy on the dips. Secondly, M&A activity is back into the market. This always creates buzz and froth. Deals are pushing up stocks. Thirdly, companies are still buying back their own stock which also adds a fill up to the market.

Inthemoneystocks.com offers up the reason that the dollar index was down so that also contributed.

There are no shortage of technical pundits who can explain this.

I think that one of the big reasons was that the Fed almost admitted it was ready to print more money with quantitative easing II. The Bank of England is likely to also do this. And the ECB continues to give banks as much money as they want — at next to nothing costs. All the comment and rhetoric from central bankers is that they are not going to sit on the sidelines and watch the whole lot go down again.

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