This month’s economic outlook

October is known as a month full of market surprises. For example, the Dow fell 508 points on 10/19/87 (22 years ago today), a record drop of 22.6% for the 30-stock index. The day became known as “Black Monday.” The Dow’s previous worst percentage drop was a 12.8% loss on 10/28/29, generally considered to be the start of the Great Depression. But October 2009, brings a recovery in the stock market? Few analysts can substantiate what is causing this “jobless recovery” amidst record government spending.
Last Wednesday’s close over the arbitrary 10,000 benchmark was greeted with enthusiasm by financial markets nationwide. Time will tell how soon the index will slip back below 10,000 -- as it has done 25 times previously. The S&P 500, the more widely-used benchmark of investment managers, finished last week up +22.8% YTD as corporate earnings results from the 3rd quarter continue to impress market watchers. The significance of the mild inflation number for the country reported on Thursday was not lost on investors, showing that earnings growth has occurred without igniting inflation pressures (source: BTN Research). In the first 9 months of 2009, the total market value of all US stocks increased by $2.0 trillion, reaching $12.6 trillion on 9/30/09. Stock values fell by $7.1 trillion during 2008 (source: Wilshire).
The final results for fiscal year 2009 are in and they are not pretty. $2.1 trillion of tax receipts were not nearly enough to cover $3.5 trillion of government spending. The resulting $1.4 trillion of debt for the entire fiscal year was more than 3 times the previous record ($455 billion) set just last year (source: Treasury Department).
Lastly, the Senate hopes to merge together health care bills from 2 different committees this week, leading the way to floor debate by the full Senate on the issue just a week from today. It's going to get interesting folks!

Hall is the chairholder of the Ellison Chair in International Floriculture at Texas A&M University. This is from his blog, Making Cents.