-October once again saw positive performance in virtually all asset classes. Domestic and international stock markets continued their upward climb and fixed income performance remained up in short and intermediate term maturities, but some longer term bonds moved into slightly negative territory. Economic news continues to show an economy struggling to return to pre-recessionary levels with positive, but meek growth. The Fed has made overtures that jumping back into the bond markets is a given, aiding investor confidence. Investors cheered the predominantly positive profit reports as corporate earnings were released throughout the month spurring gains.
-Government job losses over shadowed modest gains in the private sector to increase unemployment by 95,000 in September. The unemployment rate remained 9.6%. The gain in private payrolls assuaged investors’ fears about the economy falling back into recession. Initial jobless claims dropped to 434,000, the lowest level it has been in over 3 months. Economists still remain skeptical that the job market has adequately improved and would like to see more progress.
-New home construction edged up in September increasing 4.4%, yet the number of new homes being built is still at less than half of the average of the past 50 years. Home sales rose in September up 10% over August, however the overall sales remain weak and many analysts are revising their expectations for a housing recovery until late 2011 or early 2012. If the housing market continues to limp forward the market’s overall recovery will remain slow.
-Consumer spending rose in September with U.S. retail sales up 0.6% and large U.S. chain stores having higher than expected sales numbers. The results elevate hopes for the holiday season.
-Inflation worries have replaced deflation concerns as recent growth has eliminated apprehension of a double dip recession. The US Treasury sold inflation protected bonds at a negative yield for the first time ever on a combination of growing inflation anxiety and low interest rates. If inflation does not occur as investors expect they could be paying to lend the government money.
-The possibility of the Fed announcing they are renewing quantitative easing practices at their next meeting has become all but a formality as the central bank is dissatisfied with the current “unacceptable” conditions in the economy. The gradual bond purchase program is estimated to be several hundred billion dollars and is expected to take place over several months. The goal of the monetary stimulus is to spur more investment and spending and in turn accelerate the recovery.
-Third quarter earnings season has seen overwhelmingly positive performance as corporations begin to move back into the black. Earnings of companies included in the S&P 500 index grew 28% in the third quarter according to analysts’ estimates over a year earlier, well above the average increase of 9% since 1988. Firms including Intel, Google, Apple, Caterpillar, Ford, Northrop Grumman, Delta, Exxon, Microsoft and Samsung all reported a surge in earnings. The year over year return comparisons have been helped by the fact that the previous years have been so poor. Going forward corporations will have tougher sledding to see such outperformance.
-The largest mortgage issuers in the country are embroiled in a foreclosure mess. Bank of America, JP Morgan and GMAC all put a moratorium on foreclosures to review their practices that came under fire from Freddie Mac for poor documentation practices. They resumed foreclosure proceedings after not finding any issues with their processes, however a coalition of state attorneys general has launched a probe against the mortgage giants suspected of shoddy foreclosure processing.
-Stock markets cooled off from their blistering September, but have continued to post gains across the board. The Dow was up for the month as blue chips advanced 3.2% and the S&P 500 gained 3.8% for its best October since 2003. Growth continued its recent trend of outperforming value and small cap stocks outperformed large cap stocks. Stocks continued prosperity was on display in the international markets to a lesser degree with developed and emerging markets returning 3.6% and 2.9%, respectively in October.
-Fixed income saw mostly positive performance for the month with longer term maturities moving into negative territory. Long Term Government and Credit bonds fared the worst at -2.2% and the Municipal sector saw negative performance across all maturity levels. On the positive side intermediate term credit and agency bonds faired the best with returns ranging from 0.5% to 0.8%. Yields rose over the month but continue to remain near historic lows with the yield on the 10 year Treasury note up slightly to 2.63%.
-The Dollar continued to sink over the month hitting record lows against many major currencies. The IMF and G-20 countries held summits over the month with currency values dominating the agenda. While some progress was made, the meetings fell short of U.S. expectations. The U.S. hoped for tougher measures against China who is believed to be keeping their currency artificially low.
-China surprised the market by announcing they are raising interest rates a quarter of percentage point. Its GDP rose 9.6% compared to the 3rd quarter of 2009, but is down from the 10.3% it posted in the 2nd quarter showing investors that China’s break neck expansion might be easing.
Index Performance – October
US Large Cap Stock (S&P 500) +3.80%
International Stock (FTSE AW ex US) +3.34%
US Broad Bonds (BarCap Aggregate) 0.36%
US Government Bond (Barclay’s Govt) -0.06%
Cash (ML 3Month T-Bill) +0.02%
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Past performance is not a guarantee of future results and there is always a risk that an investor may lose money. Information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Such expense would reduce the returns illustrated. Returns are shown gross RWM’s advisory fee. The incurrence or inclusion of an advisory fee will have the effect decreasing performance results. For example an advisory fee of 1% compounded over a ten year period would reduce a 10% return to an 8.9% annual return. RWM’s form ADV is available upon request. The form ADV is the RIA disclosure document that outlines material arrangements and business practices.