Market review of the 3rd quarter, and a look ahead to the last qtr of 2012

Market review of the 3rd quarter, and a look ahead to the last qtr of 2012



Wall Street closed its best third quarter since 2010 after a wave of central bank actions across the globe (and expectations of future action) drove up equities in an unexpected summer rally. However, signs of weakness in the economy pushed markets down in the final week of September and may lead to further bearish sentiment. For the quarter, the S&P rose 5.76%, the Dow increased 4.32% and the Nasdaq rose 6.17%. Lets take a quick look back.

July: July was a volatile month for stocks. Markets were kicked around by domestic indicators and news surrounding the debt crisis in Europe. During the final weeks of July we saw the release of corporate earnings reports for many major companies. Across the board, most companies showed weak revenue, with less than half exceeding revenue expectations. Even so, a number of companies were still able to beat earnings expectations, meaning they are getting better at doing more with less.


August: August was the month of the summer sugar high rally as investors drove up stock prices on hopes that the Fed would undertake further quantitative easing. Retail sales in August beat expectations due to a strong back-to-school season, which could forecast robust holiday sales. These two shopping seasons are the most important for retailers, so a strong performance could lead to upbeat corporate earnings reports next quarter.


September: Several market-moving events took place last month; markets were dominated by expectations of major Federal Reserve stimulus action and hope that the European Central Bank would unveil a new plan. Despite the Fed’s historical reluctance to become involved in the election cycle, under the pressure of a disappointing August jobs report, the Fed finally launched the long-awaited additional quantitative easing. Under QE3, the Fed has made an open-ended commitment to buy mortgage-backed securities to the tune of $40 billion per month. The move is designed to lower long-term interest rates and spur more lending to businesses and consumers. In a similar move, the ECB launched a bold bond-buying program designed to reassure European investors and lower interest rates on Spanish and Italian bonds.


What’s Next: The first week of October will provide plenty of market-moving data, with the release of third-quarter reports on GDP, manufacturing, consumer sentiment, and more. We will also see the FOMC minutes from last week’s Fed meeting, which will provide more clarity into possible Fed moves this year. Earnings reports for Q3 will start trickling in during coming weeks, and although predictions indicate revenues and profits may be down across the board, we could get some surprises.


As we look ahead to the final quarter of the year, markets could decline from their summer peak or rise to new highs. The market rallies of the summer indicate that investors are poised to respond to positive news, and should the economy show further signs of recovery, we may see more bullish market behavior. With the election cycle nearing its conclusion, markets may also react to political uncertainty surrounding the fiscal cliff and other economic issues.

As an investor, it is wise to assess your own risk tolerance from time to time and make sure you are allocated suitably for your personal investment objectives.

HEADLINES:

Protests in Spain and Portugal threaten austerity measures. Thousands of demonstrators took to the streets in Madrid and Lisbon, protesting the deep tax increases, spending cuts, and high unemployment. Despite mounting tensions, politicians promise to hold the line.

Durable goods orders fell in August, but business investment remains up. A significant drop in orders for commercial aircraft drove down overall durable goods orders; however, the Commerce Department reports that core capital goods orders – an indicator of business confidence – rose 1.1% after two months of declines.

Consumer spending rose in August even though income barely increased. Consumers were forced to spend more at the pump as gas prices rose. This is concerning to analysts as it may rein in discretionary spending at the end of the year, affecting holiday retail sales.

Housing contracts fell in August. The number of signed contracts to purchase previously occupied houses fell 2.6% in August after hitting a two-year high in July. Unemployment, lack of income growth, and a strict credit market may make it tough for housing to regain its peak this year.



QUOTE OF THE WEEK:

"Happiness lies in the joy of achievement and the thrill of creative effort." – Franklin D. Roosevelt

Share the Wealth of Knowledge!

Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!





If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.



Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets



The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.

The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.

The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.

The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.



By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.