Weekly Market Update, September 17, 2012

General market news

• Treasuries sold off considerably after the Federal Reserve’s (the Fed’s) announcement last Thursday. The 10-year yield was up as high as 1.90 percent late in the week, before falling back to 1.85 percent early Monday.
• The Fed announced that it will be keeping rates at exceptionally low levels through at least mid-2015. It also announced that it will be purchasing $40 billion in mortgage-backed securities for an undetermined amount of time. Consequently, we would expect mortgage rates to move lower over the coming months.
• Equity markets rallied on the news of the new round of quantitative easing, with the S&P 500 gaining nearly 2 percent.
• The latest rally has resulted in very strong equity market gains year-to-date; the Nasdaq is up more than 20 percent, and the S&P 500 has gained 18.4 percent. The S&P 500 is now just 100 points below the high it set back in 2007, before the financial crisis set off a bear market.  

Equity Index	Week-to-Date %	Month-to-Date %	Year-to-Date %	12-Month %
S&P 500	1.99%	4.31%	18.41%	23.25%
Nasdaq Composite	1.54%	3.87%	23.31%	22.94%
DJIA	2.20%	3.93%	13.48%	21.38%
MSCI EAFE	3.72%	6.75%	14.57%	13.56%
MSCI Emerging Markets	4.72%	7.23%	13.44%	6.94%
Russell 2000	2.71%	6.55%	17.85%	22.83%

Source: Bloomberg

Fixed Income Index	Month-to-Date %	Year-to-Date %	12-Month %
U.S. Aggregate	–0.66%	3.17%	4.47%
U.S. Treasury	–1.30%	1.06%	2.75%
U.S. Mortgage-Backed Securities	0.10%	2.69%	3.35%
Municipal Bond	–0.51%	4.89%	7.31%
U.S. Treasury: U.S. TIPS	1.13%	6.90%	8.92%

Source: Bloomberg

 

What to look forward to

This week should be fairly quiet. The health of the manufacturing sector remains a concern; the Empire Manufacturing and Philadelphia Fed indicators are both anticipated to show regional weakness in this important economic sector.

The outlook is better for housing. Housing Starts may have risen 2.6 percent in August, if analysts are correct. Additionally, Existing Home Sales may have experienced a 2-percent increase in volume. With homebuilder stocks continuing to rally, there seems to be a strong expectation that the housing situation will improve going forward.

Economists are less sanguine about Leading Indicators, which are expected to have slipped 0.1 percent in August. The real U.S. economy continues to bumble along above stall speed, even as central bank actions have inspired increased confidence in financial markets.

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^®