Bracing ourselves for the anniversary
Markets were thin in August, making many investors wonder whether rising share prices would hold or not as investors returned from vacations. The first day back from the long weekend was surely a test. Prices plunged across the board in all the major indexes. But as economic data came in on the positive side Wednesday through Friday, equity investors became more comfortable and allowed prices to recuperate part of the Tuesday sell-off.

According to the Wall Street Journal, September is the cruelest month for equity prices. One analyst suggested it was because portfolio managers are getting ready for year-end and would rather clean up their portfolios by the end of the third quarter. Consequently, a lot of losing stocks get dumped in September.

This year also brings the first anniversary of the September 11 tragedy. Psychologically, people are concerned that this will add to the negative sentiment in the market, which has enough problems already considering all the corporate scandals and winds of war. The month may have just begun, but investors will be happy when it has ended.

Treasury rally fizzles on employment report
Even though a good number of the economic indicators were generally positive on the economy this week, bond investors focused on the decline in stock prices. Consequently, Treasury security prices rallied during the beginning of the week. The employment report was close to expectations, but the drop in the unemployment rate coupled with the upward revision to July payroll data caused bond investors to let go of their hopes for a Fed rate cut at the FOMC meeting this month. Had nonfarm payrolls declined in August, the Fed might have chosen to cut the fed funds rate target at this month's meeting. A payroll rise coupled with a jobless rate decline makes that scenario less likely. After all was said and done, Treasury yields were still down from a week ago.