Weekly Market Update, September 10, 2012

General market news

• Treasury yields were as low as 1.64 percent before moving higher to 1.67 percent early Monday morning. The market has been in a range since midsummer, awaiting the highly anticipated yet slow in coming announcement of a third round of quantitative easing (QE3).
• It seems that many of the bond markets have priced in some sort of QE3, as federal funds futures show rates remaining low through July 2015.
• Equity markets posted solid returns last week after a strong move higher on Thursday. News that the European Central Bank would have unlimited bond-buying capability was one of the key catalysts for the rally.
• The S&P 500 finally broke out of a narrow trading range to the upside, but it was the small-cap Russell 2000 Index that really benefited from the risk-on trade, gaining 3.74 percent.
• Last week’s economic reports showed a fairly mixed jobs market; the number of new jobs created was lower than expected, but the unemployment rate dropped. 

Equity Index	Week-to-Date %	Month-to-Date %	Year-to-Date %	12-Month %
S&P 500	2.28%	2.28%	16.10%	22.68%
Nasdaq Composite	2.29%	2.29%	21.43%	24.57%
DJIA	1.68%	1.68%	11.02%	19.81%
MSCI EAFE	0.94%	0.94%	8.34%	6.65%
MSCI Emerging Markets	0.43%	0.43%	6.24%	–2.99%
Russell 2000	3.74%	3.74%	14.74%	20.50%

 

Fixed Income Index	Month-to-Date %	Year-to-Date %	12-Month %
U.S. Aggregate	–0.27%	3.58%	4.89%
U.S. Treasury	–0.47%	1.91%	3.78%
U.S. Mortgage-Backed Securities	–0.04%	2.54%	3.33%
Municipal Bond	–0.06%	5.37%	7.91%
U.S. Treasury: U.S. TIPS	0.02%	5.73%	7.40%

 

 

What to look forward to

Both Wholesale Inventories and Business Inventories are expected to have risen 0.3 percent in July, after falling in June. These reports are a useful gauge of business confidence and are important in their own right because higher inventory build-up is a driver of gross domestic product growth.

We’ll also get a view into the cost of living, with the Consumer Price Index anticipated to have increased 0.5 percent in August. This would be a large increase from the 0-percent change in the previous month. There have been some complaints about rising prices recently. Food and commodity prices especially may have driven higher consumer costs in August.

The rise in vehicle and gas sales may be primarily responsible for a strong increase in Advance Retail Sales in August. Despite low reported levels of consumer confidence, consumption seems to be continuing at a slow but steady pace.

Less is expected from Industrial Production, which may have risen just 0.1 percent in August. Capacity Utilization is also expected to remain unchanged. This isn’t particularly surprising because other indicators, such as the ISM Manufacturing Index, continue to show signs of relative weakness.

Disclosures:Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS. 

Authored by the Investment Research team at Commonwealth Financial Network.

© 2012 Commonwealth Financial Network^®