Dow Wraps Up Historic September

Stocks saw a modest pullback on Thursday as the best September for equities in more than 70 years drew to a close.
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NEW YORK (

TheStreet

) -- Stocks saw a modest pullback on Thursday, as investors locked in gains on the strongest September rally for equities in more than 70 years.

Consumer and tech sectors led equities lower in the final session of month as investors turned cautious ahead of key manufacturing and spending data to be released on Friday.

The

Dow Jones Industrial Average

closed the day down 47 points, or 0.4%, at 10,788. The

S&P 500

dipped 4 points, or 0.3%, to 1,141 and the

Nasdaq Composite

fell 8 points, or 0.3%, to 2,368.

Overall, the Dow rose 777 points, or 7.7%, in September, its biggest appreciation during what is historically a bad month for the the blue-chip index since 1939. The S&P 500 jumped 92 points, or 8.8%, while the Nasdaq had the most impressive gain of all, climbing nearly 12% during the period. The unexpectedly euphoric rise of equities was fueled by an abatement of concerns about a double-dip recession as well as the prospect of further quantitative easing.

Thursday began with better-than-expected economic data. The Department of Commerce said that

the U.S. economy grew 1.7% in the second quarter, in its third and final read on gross domestic product for the period. The increase was slightly stronger than the rise of 1.6% that economists had been expecting, according to Briefing.com.

"I expected that the revision needed to come in at 1.6% or slightly higher and it came in slightly above largely because we had a stronger dollar in the second quarter, which bodes well for imports," said Rob Russell, president of Russell & Co. "If you look at the GDP revision, it was really the imports that did it. And now we're in a period of a falling dollar so exports become more important."

Despite the boost that the better-than-expected data gave to stocks, Russell did not think it was a strong enough sign to significantly impact confidence.

"We're in a period of hibernation and that's what GDP is showing us, but we're still not hiring, and that's going to drag on GDP in the future," he said.

The Department of Labor said

initial jobless claims shed 16,000 to 453,000 in the week ended Sept. 25. According to Briefing.com, economists had been expecting a milder decline to 457,000 from 469,000, previously.

Meanwhile, Chicago-area manufacturing activity unexpectedly rose during September to 60.4 from 56.7, according to Chicago's Institute for Supply Management. Economists had anticipated a lower reading of 55, according to Briefing.com.

Troubling news from the Europe also kept stocks under pressure as

Moody's downgraded Spain's debt by one notch and

Ireland's central bank detailed costs of a bank rescue plan. The country's second-largest bank,

Allied Irish Bank

, will need €3 billion ($4.1 billion) in addition to the conversion of the Irish government's current €3.5 billion ($4.8 billion) of preferred shares, bringing Ireland's stake to more than 90%, according to a

Financial Times

report. Meanwhile, the cost of

bailing out

Anglo Irish Bank

could cost €34 billion ($46.3 billion).

Adding to uncertainty regarding U.S. trade relations with China, the U.S. House of Representatives passed a bill that would penalize China for undervaluing its currency late Wednesday although it remained unclear whether the legislation would get enough votes in the Senate to become law.

Overseas, Hong Kong's Hang Seng declined 0.8% Thursday, and Japan's Nikkei lost 2%. The FTSE in London closed 0.4% lower, and the DAX in Frankfurt fell 0.3%.

With mixed economic reports and continuing global concerns, investors decided to lock in the strong gains in the last month.

"There's still this very sluggish growth even with very low rates and the Fed doing everything they can to stimulate growth," said Bob Enck, president and CEO of Equinox Fund Management. Enck said that while even the prospect of another round of quantitative easing has helped the market, he doesn't see much long-term potential there.

"The real driver is going to be U.S. businesses and consumers coming back into the mix and becoming more active. Right now, with all the uncertainty from health care reforms, taxes and other regulatory unknowns, that's slowing everything down."

"For us," he said, "seeing the gloomy confidence number and the Fed's concern about the economy, we think the time is right for investors to protect themselves with non-correlated assets classes."

In other news, White House Chief of Staff Rahm Emanuel is to step down on Friday, officials said. He will be replaced temporarily by senior White House adviser Peter Rouse.

Across equity markets, basic materials and tech stocks were getting hit the hardest. On the Dow,

Caterpillar

(CAT) - Get Report

,

Pfizer

(PFE) - Get Report

and

American Express

(AXP) - Get Report

were the biggest laggards while

Boeing

(BA) - Get Report

,

Exxon Mobil

(XOM) - Get Report

and

Wal-Mart

(WMT) - Get Report

outperformed.

Shares of

UBS

(UBS) - Get Report

lost 2.2% to $17.03 after it said it won't pay a dividend until 2013 or 2014 to comply with Basel III capital requirements. The announcement was made by the company's financial chief at a presentation for analysts and investors.

AIG

(AIG) - Get Report

entered an agreement with the U.S. Treasury under which the Treasury would get roughly 1.655 billion common shares of AIG in exchange for $49.1 billion of preferred shares, enabling AIG to repay all of its debt to taxpayers.

AIG also reached an agreement to sell its Japan-based life insurance businesses, AIG Star Life Insurance and AIG Edison Life Insurance, to

Prudential Financial

(PRU) - Get Report

for $4.8 billion. AIG's stock gained 4.3% to $39.07 while Prudential's stock fell 4.2% to $54.18.

Shares of

Rite Aid

(RAD) - Get Report

were flat at 94 cents after the retail drugstore chain said same-store sales fell 0.9% in September on weak prescription and discretionary purchases.

News that crane maker

Manitowoc

(MTW) - Get Report

will refinance some of its debt helped shares surge 13.6%, to $12.11.

Shares of

Verint Systems

(VRNT) - Get Report

jumped 14.5% to $29.55 on a

Wall Street Journal

report that identified the company as a likely target for buyout shops.

Shares of drug development services company

Covance

(CVD)

rose 10.9% to $ 46.79 after it said that it had entered into an agreement with

Sanofi-Aventis

(SNY) - Get Report

that could be worth $2.2 billion over 10 years.

Technology distributor

Synnex

(SNX) - Get Report

climbed 8.6% to $28.14 after it reported better than expected third quarter results on Wednesday and forecast stable demand for the fourth quarter.

Shares of cargo carrier

Atlas Air

(AAWW) - Get Report

ended down sharply by 7% to $50.30 after

Boeing

(BA) - Get Report

said it would delay the deliver of its 747-freighter jet until mid 2011. Atlas Air was expecting 3 freighter jets to be delivered by early 2011.

In commodity markets, the Energy Information Administration said natural gas storage levels increased by 74 billion cubic feet in the week ended Sept. 24. The level was much higher than the range of 67 billion to 71 billion cubic feet that analysts polled by Platts had been projecting.

Following the EIA's report, natural gas for November delivery settled 9 cents lower at $3.87 per million British thermal units. Meanwhile, the November crude oil contract settled $2.11 higher at $79.97 a barrel.

Elsewhere in commodity markets, the December gold contract settled slightly lower at $1,309.60 an ounce.

The dollar was trading lower against a basket of currencies with the dollar index marginally lower by 0.05%, while the benchmark 10-year Treasury note weakened 3/32, lifting the yield to 2.512%.

--Written by Melinda Peer and Shanthi Venkataraman in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.