September stock rally was one for the record books. And not because of its sheer size, but because September is traditionally a weak month for the market.
In fact, this September was the best seen in a couple of generations of stock traders. Why? The prospect of the Fed easing more – applying more liquidity to support the weak economy – is the likely culprit. Of course, as you know from our writing, gold is a major beneficiary of weak currencies – and the prospects of QE2 sent the metal soaring as well.
Industrial commodities are also setting new records. And it’s not the U.S. growth that pushes them higher. In fact, investors are hard pressed to find U.S. economic data that’s really positive these days. Just today, the International Monetary Fund, for example, lowered its growth forecast for our country for this year and the next, citing lackluster consumer spending.
Even though the latest numbers on personal income and consumer spending came in better than economists expected, the updside on personal spending was minimal. It should not be a big surprise, considering the employment situation in the country. And while personal income is improving (the economists expected the growth of 0.3 percent, while the actual growth was 0.5 percent; the prior reading was for 0.2 percent growth).
The IMF now expect the U.S. economy to grow at a 2.6 percent rate for 2010 and at a slower, 2.3 percent rate, for 2011; these numbers are lower than the IMF’s own earlier projections by 0.7 and 0.6 percentage points, respectively.
What stands out on the numbers released today is the projection for emerging and developing economies. While the advanced economies as a whole are expected to outperformed the IMF’s earlier projections by only 0.1 percentage point this year, and grow slower by 0.2 percentage points (coming in at a 2.2 percent growth rate in 2011), the IMF does not expect the emerging economies to slow down at all compared to its earlier estimates.
For this year, the IMF sees a 0.3 percentage points better growth for the emerging economies; it didn’t change its projections for 2011 for the group. Growth estimates for China didn’t change – but they stand out as the highest in the world, at 10.5 percent for 2010 and 9.6 percent for 2011.
Commodities will remain key beneficiaries of this stellar growth, as will our China-based recommendations, including the iShares FTSE/Xinhua China 25 ETF (NYSEARCA:FXI)
and closed-end China Fund (NYSE:CHN)