Weekly Wrap

Here is Briefing.com's weekly recap:

Students of stock market history know that the month of October has an infamous track record. It isn't the worst month, on average, for the stock market. That distinction belongs to September. However, the month of October has produced some of the most unsettling moments in stock market history. Unfortunately, October 2008 will forever fit the mold as one of those infamous periods.

For all intents and purposes, there was a market crash this October as the S&P 500 dropped as much as 23.6% between its closing level on Friday, Oct. 3, to its intra-day low on Friday, Oct. 10.

Amid a period of record volatility, the market managed to pare its losses and ended the month down "only" 16.9%. The latter qualifies as the eighth worst, one month percentage drop in the S&P 500 since 1930.

October, though, didn't end with a whimper. On the contrary, it ended with a big bang as the final week of trading culminated in a 10.5% gain for the S&P 500.

The positive move was secured by a massive 10.8% increase in Tuesday's session alone, as a mix of portfolio rebalancing among mutual funds near their fiscal year end, short covering, and bottom-fishing buying interest powered the advance. Prior to Tuesday's move, the S&P 500 had dropped 13.9% in the preceding five sessions.

One of the unique elements of the final week was that it brought another round of bad economic news. The stock market, though, moved on its accord, seemingly comfortable that this latest batch of bad news had already been priced in and uplifted by some encouraging developments in the term lending markets and further easing by central banks around the globe.

Briefly, the biggest piece of economic news was that real GDP declined 0.3% on an annualized basis in the third quarter, pulled down by a worrisome 3.1% decline in consumer spending that subtracted 2.25 percentage points from the GDP calculation.

The GDP data followed a report from the Conference Board that consumer confidence hit a record low in September and accompanied an initial jobless claims report that showed the 4-week moving average at a recession-like level of 475,500. The latter mark reinforced the thought that we'll see a tenth consecutive decline in nonfarm payrolls when they are reported next Friday.

New home sales, up 2.7% in September, provided some good news, as did the report that orders for durable goods increased 0.8% in September. There might have been a better response to the durables number if not for the added indication in the report that business investment, down 1.4%, declined for the second month in a row.

The Chicago Purchasing Managers Index didn't do anything to help improve the economic outlook. It fell from 56.7 in September to 37.8 in October. A number below 50 is considered to be a sign of contraction.

Still, like the other discouraging economic releases during the week, the market brushed aside the Chicago PMI news and finished Friday's session higher.

Incidentally, Friday's winning session produced the first back-to-back up days in the market since September 25-26. It didn't end up being an easy task either. The S&P declined 2.7% from its high in the final hour of trading Friday to leave it with a small gain, yet a closing rush of buying interest left it up 1.5% for the day.

The late move Friday was consistent with a series of final hour dramatics throughout the week. In fact, some of the swings, like the one seen in the final hour Wednesday, covered more ground than the S&P 500 did all of last year when it gained 3.50%.

Extreme volatility was the norm in October. This week was no exception, although there was a considerable pullback in the VIX Index (from 79.13 to 59.76). The VIX is referred to as the fear gauge, so it can be said investors' fears subsided some this week.

That is understandable when taking into account the drastic improvement in short-term lending rates.

To wit, the overnight Libor rate, which is what banks charge each other for dollar loans, dropped to 0.41% from 1.28% at the end of last week and from 6.88% at its Sept. 30 peak. In turn, 90-day commercial paper rates dropped 61 basis points to 2.73% following the Fed's implementation Monday of its Commercial Paper Funding Facility.

The improvement in term lending rates offers some evidence that the Fed's funding initiatives are having the intended effect of bolstering confidence in counterparty risk. This is a constructive sign for the credit market and the stock market, but as we have been reminded by the Fed Chairman himself, it doesn't mean there will be a quick economic recovery.

Fittingly, the FOMC voted unanimously Wednesday to cut the fed funds rate another 50 basis points to 1.00%, bringing it to its lowest level since 2004. The move was widely expected, yet the Fed left open the possibility that it could cut rates further by emphasizing the point that downside risks to growth remain while inflation is expected to moderate in coming quarters.

The last time the fed funds rate was below 1.00% was 1958.

The Federal Reserve followed up Wednesday's rate-cutting action with an announcement that it is establishing currency swap lines with Brazil, Mexico, South Korea and Singapore -- four emerging market economies that it deems to have systemic importance. On a related note, the central banks of Taiwan, Hong Kong, China and Japan all cut their key lending rates this week.

A statement from the G7 warning of the pratfalls of the excessive gains in the yen and talk of the BOJ rate cut helped cool the Japanese currency, which weakened 4.2% against the dollar this week and provided some measure of relief for Japanese exporters that get pinched by a stronger yen. The dollar index, meanwhile, slipped 0.9% after gaining 4.9% in the prior week.

So, October is in the history books and it offered a lot to be remembered as far as stock market history goes. This November will offer a lot to be remembered, too, as we will soon see more history made when we elect a new president on Tuesday.

What November brings for the stock market is anyone's best guess. Since 1950, November has typically marked the start of a very favorable six-month return period for the market.

Given the losses seen year-to-date, let's hope the favorable stock market history repeats itself in the next six months. To be sure, any bullish-minded investor, whether they are a Republican or a Democrat, wouldn't mind being a part of that history.