Monthly Economic Update August 2012
In a continuation of the tone from July, investment markets in August moved steadily higher. By month end, the U.S. stock market had risen for its third consecutive month and reached a level last seen over four years ago. Higher asset prices and diminished volatility, however, are no more a reflection of economic health than the calm of a hurricaneâ€™s eye suggests the storm has passed. Indeed, aside from a bump in U.S. retail sales, the makings of a turn in housing, and an uptick in job growth, global economic releases during the month were universally poor and challenges in Europe intensified.
The apparent disconnect from economic fundamentals can be attributed to faith being placed on the ability of central banks to come to the rescue. Starting with the European Central Bankâ€™s meeting on September 6, the timing, magnitude, and ultimate impact of anticipated monetary actions may fall short of the mark. One week later, eyes will turn to the U.S. Federal Reserve as they conclude their own set of deliberations. Anything shy of dramatic bond purchases out of both of these entities may not sit well with investors.
Central bank activity will not be the only thing on radar screens between now and year-end. In September, Germanyâ€™s constitutional court will rule on the legality of the new European bailout fund (the 12th) and Greeceâ€™s creditors will evaluate the beleaguered nationâ€™s progress on its fiscal deficit. On October 8, that evaluation will result in a decision on the continued funding of Greece. Notably, Germanyâ€™s approval of the bailout fund and continued Greek financing are dialed into market expectations. Rounding out important events in October will be another ECB meeting on the 4th and the next European summit on the 18th. U.S. elections in early November followed by decisions on the year-end fiscal cliff will round out major events in the home stretch of 2012. Current capital market enthusiasm juxtaposed with an eventful calendar suggests heightened volatility through year-end.
Augustâ€™s Economic Releases
The S&P 500 index gained 2.3% for the month and is now up 13.5% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 2.7% in August while the MSCI Emerging Markets index fell 0.3%. Year-to-date, international developed and emerging markets are up 6.9% and 5.6%, respectively.
In the fixed income market, the Barclays US Aggregate index gained 0.1% for the month and the yield on the 10-year U.S. Treasury bond rose slightly for the month to end with a yield of 1.57%. For the year, the Barclays U.S. Aggregate is up 3.9%. Credit spreads tightened nicely during the month with high yield spreads ending at 5.9%, slightly below the 15 year average. The Barclays High Yield index gained 1.2% in August and is up 10.6% so far this year. International bonds rose 1.5% for the month and now up 3.2% for the year.
The Dow Jones UBS Commodity index returned 1.3% in August and the Dow Jones U.S. Real Estate index rose fractionally for the month.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.