Quarterly Market Review, July - September
The domestic stock markets had another strong run to end the 3rd quarter. The Federal Reserve Open Market Committee announced another round of quantitative easing (QE) via a $40 billion a month bond-buying program that will run for an indefinite amount of time. We are now just 20 days until the presidential election, which is expected to be a very close race until the end. Enjoy the FineMark Quarterly Review and please contact one of your FineMark professionals with any questions.
Domestic equities confounded anyone worried about a possible repeat of August 2011 and reached year-to-date highs in mid- September. The Dow hit a level not seen since December 2007, while the S&P 500's quarterly gain left it up more than 14% for all of 2012. The Nasdaq has done even better, gaining more than 6% in Q3, and almost 20% so far this year. The Russell 2000 was in third place for the year despite being edged out during the quarter by the Global Dow, which trailed domestic equities year-to-date despite last quarter's nearly 5% advance.
The 10-year Treasury bond yield hit a new low in late July as demand pushed prices up; however, it edged back upward a bit by the end of the quarter. After spiking close to $100 in mid-September, oil prices fell back to end the quarter at $92 a barrel, more than 8% higher than at the end of June. Gold moved steadily upward, gaining more than 10% for the quarter and ending at roughly $1,775 an ounce. Meanwhile, the dollar hit $84 in July against a basket of six foreign currencies, then gave up more than 5% to end the quarter at roughly $79.
Quarterly Economic Perspective
- It was Spain's turn to become the focus of concerns about eurozone financial stability as interest rates briefly topped 7% once again. Investors were relieved when a German court cleared the way for implementation of the eurozone's bailout fund. However, by the end of the quarter, protests against fresh austerity measures and tax increases coupled with worry about a potential downgrade of Spain's credit rating weighed on global equities.
- U.S. economic growth continued to slow; the Commerce Department said gross domestic product rose only 1.3% in the second quarter compared to Q1's 2% rate. Meanwhile, the Bureau of Labor Statistics said the unemployment rate remained stalled at 8.1% in August as increases in corporate jobs were partly offset by cuts in government payrolls.
- There was some encouraging news in the housing market. The S&P/Case-Shiller index of home prices saw three straight months of increases during the quarter, and by quarter’s end was at its highest level in nearly two years. Meanwhile, the National Association of Realtors® said home resales were 9.3% higher than a year ago. And although sales of new single- family homes fell 0.3% during August, the Commerce Department said they were still almost 28% higher than the previous August, and the median home price of $256,900 was the highest it's been since March 2007. Finally, housing starts were almost 30% higher than a year earlier.
- The Federal Open Market Committee launched QE3, a new $40 billion bond-buying program that represents the third round of quantitative easing designed to help stimulate the economy, and set no time frame for the purchases to end. The Fed also said it now anticipates keeping its target interest rate at its current low level until mid-2015.
- U.S. manufacturing data was mixed. Hurricane Isaac helped cut the Fed's measure of industrial production by 1.7%, and a sharp drop in orders for commercial aircraft helped take durable goods orders down by 13.2% in August. Meanwhile, the Commerce Department said retail sales in August were 4.7% higher than a year ago, while the Bureau of Labor Statistics' yearly snapshot of consumer expenditures showed the first yearly increase in consumer spending in three years.
- In China--the world's third largest economy behind the United States and the eurozone--economic growth continued to slow in the second quarter, hitting a three-year low of 7.6%. While robust by U.S. standards, it's still a far cry from the 11.9% seen at the beginning of 2010.
Eye on the Month Ahead
Key dates and data releases: U.S. manufacturing, construction spending (10/1); auto sales (10/2); U.S. services sector (10/3); U.S. factory orders, FOMC minutes (10/4); unemployment/payrolls (10/5); balance of trade (10/11); wholesale inflation (10/12); retail sales, business inventories, Empire State manufacturing survey (10/15); consumer inflation, industrial production, international capital flows (10/16); housing starts (10/17); Philadelphia Fed manufacturing survey (10/18); home resales, options expiration (10/19); new home sales, FOMC announcement (10/24); durable goods orders (10/25); initial estimate of Q4 gross domestic product (10/16); personal income/outlays (10/29); home prices (10/31).
Data source: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflects price changes, not total return.
Dow Jones Industrial Average (DJIA) is a price-weighted index composed
of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a
market-cap weighted index composed of the common stocks of 500 leading
companies in leading industries of the U.S. economy. The NASDAQ
Composite Index is a market-value weighted index of all common stocks
listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap
weighted index composed of 2000 U.S. small-cap common stocks. The Global
Dow is an equally weighted index of 150 widely traded blue-chip common
stocks worldwide. Market indexes listed are unmanaged and are not
available for direct investment. The U.S. Dollar Index is a weighted
geometric mean of the dollar compared to the euro, Japanese yen, British
pound, Canadian dollar, Swedish krona, and Swiss franc.