XAO Crashes in September

Well what a month. September turned out to be the second worst month for the All Ords since October 1987, January of this year just edging it out of first place. The XAO fell -11.2% in September and defied my expectations of a rise - again confirming my inability to pick short term movements in the market.

However, my longer term view continues to play out and despite today's new low in the XAO, I expect the market to continue to make new lows. Credit markets are under severe stress (take a look at the TED spread below) and with a bailout plan of any kind in doubt, it's difficult to see confidence returning anytime soon.

But with such a steep drop surely we should expect some kind of bounce in October? I think that is probably true but if it there ever a time when it was hard to identify a catalyst for a bounce other than that the market had a steep sell off, it is now. It could come with a revote of the bailout package in a couple of days or it might not. Either I still think that the market has still not priced in the full effect of earnigns downgrades and the full extent of a recession.

In Australia, the economy is still holding in there, retail sales for August rose 0.3% and employment remains reasonably robust. However I feel there is still some denial about Australia's ability to sail through a global slowdown relatively unscathed and I still don't think we've heard the worst of the news from our major financial instituitions.

On that cheery note I'm going to say that October will finish lower than Septmeber although I wouldn't be surprised to see a bounce from current levels either. Also don't forget to have your say in this month's poll.