Monthly Economic Update October 2013
Dysfunction in the nationâ€™s capital was sufficient to drive a 16 day partial government shutdown, but had little impact on investment markets in October. Following relatively benign movement during the first half of the month, stocks promptly hit new highs once government funding was restored.
Despite calm on Wall Street, Main Street displayed far greater concern. Based on daily Gallup surveys, the plunge in consumer confidence during the shutdown was on a par with that witnessed during the height of the financial crisis in 2008 (see graph). Considering government funding now only lasts through January 15, consumers and businesses remain cautious. Accordingly, the shutdownâ€™s estimated 0.6% direct hit to fourth quarter GDP may have longer-term consequences to economic progress.
In light of recent investor attitudes that â€œbad is good,â€ it is entirely plausible that Octoberâ€™s market rally rests squarely on the shoulders of an on-hold Federal Reserve. Economic trends leading up to the shutdown showed pockets of weakness. Sequential retail sales growth had turned negative, payroll growth was low and trending down, and housing activity had begun to display the impact of higher mortgage rates. Delayed, perhaps distorted economic data gives the Fed diminished clarity on these issues. Likewise, there is a reasonable chance of lingering shutdown effects, and the reprieve from fiscal bedlam may be quite short lived. Most economists view tapering as delayed until March.
Octoberâ€™s Economic Releases
The Barclays U.S. Aggregate index gained 0.8% for the month, and the yield on the 10-year U.S. Treasury bond fell slightly to end at 2.57%. For the year, the Barclays U.S. Aggregate is down 1.1%. High yield credit spreads compressed 47 basis points during the month to end just above the post crisis low. The Barclays High Yield index gained 2.5% in October and is up 6.3% so far this year. International bonds gained 1.1% for the month and are now down 1.3% for the year-to-date.
The S&P 500 gained 4.6% for the month and is now up 25.3% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 3.4% in October while the MSCI Emerging Markets index rose 4.9%. Dollar weakness against emerging market currencies modestly enhanced returns for dollar based investors. Year-to-date, international developed and emerging markets have returned 20.0% and 0.3%, respectively. In other markets, the DJ U.S. Real Estate index rose 3.9% for the month and the DJ Commodity index fell 1.5%.
This commentary was written by Robert W. Lamberti, CFA, Vice President of Investments and a Principal of Summit Financial Resources, Inc. 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, mortgage-backed 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, may 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. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.â€™s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.