Monthly Economic Update October 2012
Following four months of steady gains, investment markets showed signs of wear in October. Stocks, commodities, and real estate fell while fixed income markets were more or less flat. Capital market weakness resulted as the smokescreen of expansionary monetary policy dissipated to reveal fairly weak economic fundamentals. Chinaâ€™s growth continued to slow in the third quarter, Europeâ€™s recession will be deeper and last longer than originally expected, Japanâ€™s Tankan business survey grew more pessimistic, and U.S. corporations disappointed on earnings growth, revenue gains, and guidance for the fourth quarter and 2013.
While investment market retrenchment may be disappointing, a focus on fundamentals provides a much healthier foundation for investment markets than does blind faith in the ECB and Federal Reserve. Furthermore, economic statistics are not devoid of positives. For example, monthly payroll gains are much healthier of late and previous monthly readings were revised materially higher. Housing numbers continue to show improvement, domestic manufacturing is expanding again, and U.S. consumer metrics have been fairly positive. Encouraging consumer data includes accelerating sequential monthly retail sales growth and confidence nearing a post-crisis high.
By way of conclusion, a summary of October would be incomplete without mention of the tragedies unleashed by Hurricane Sandy. The so-called â€œFrankenstormâ€ resulted in the evacuation of hundreds of thousands of people, cancellation of thousands of flights, shutdown of mass transit systems, schools, and businesses throughout the northeast, mass power outages for millions, and the first unscheduled financial market shutdown since the attacks of September 2001. At least 113 lives were lost to Sandy, 43 in New York City alone. Total economic damage, estimated to be in excess of $50 billion, will make Sandy the second most costly U.S. hurricane since 1900. Katrina, the most costly and third deadliest storm, took the lives of 1,200 people and caused $108 billion in total damages.
Octoberâ€™s Economic Releases
The S&P 500 lost 1.8% for the month and is now up 14.3% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 0.8% in October while the MSCI Emerging Markets index fell 0.6%. Year-to-date, international developed and emerging markets are up 11.0% and 11.3%, respectively.
In the fixed income market, the Barclays US Aggregate index gained 0.2% for the month and the yield on the 10-year U.S. Treasury bond rose slightly for the month to end at 1.72%. For the year, the Barclays U.S. Aggregate is up 4.2%. Credit spreads tightened somewhat during the month with high yield spreads ending at 5.6%, modestly below the 15 year average. The Barclays High Yield index gained 0.9% in October and is up 13.1% so far this year. International bonds lost 0.4% for the month to finish up 4.7% for the year-to-date.
The Dow Jones UBS Commodity index dropped 3.9% in October and the Dow Jones U.S. Real Estate index gave back 0.5% 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.