Equities
Stock Markets in the last three months saw a continuation of the roller-coaster-like turbulence of the past couple of years. After a strong first quarter and a big pullback in the second quarter, July saw a strong recovery in global markets. This was followed by weak performance in August, and September (historically a troublesome month for markets) actually saw a nice bounce back
Corporations continued reporting good earnings and Stocks have had the best September in over 60 years. A look at a chart of the Dow Jones Industrial Average shows just how strong that September was. The DJIA index went from approximately 10,000 on September 1st to 10,800 in the last week of the month
Fixed Income
Investors have fled the stock market the past couple of years and in search of safety and have put their money into fixed income instruments such as treasuries and municipal bonds. When there are a lot of inflows of money to an area the price of investments in that area are driven upwards. In the fixed income world when prices go up the yields on those investments go down.
Example:
If you buy a bond for $1000 that has a 10% coupon (or interest rate), you will receive $100 every year in interest and your yield would be 10%.
If there is a lot of demand (by investors) for that bond you may have to pay $1100 to own that same bond. The bond will still have a 10% interest rate and you will still receive $100 every year in interest, but your yield is not 10% anymore, it is actually $100/$1100 or 9.01%
The example above has occurred in the fixed income world, except that instead of yields going from 10% to 9%, they have gone all the way down to 2-5% in some areas making them less attractive investments. There has been a great run in the bond markets over the past 15-20 years and although it does not look like it is over yet, it does appear to be winding down. Treasuries, Municipals, Corporate Bonds, and other types of fixed income investments are still good to include in your portfolio, but if you are in search of obtaining additional income it may also be wise to look at Dividend stocks, REIT's, and even Preferred Stocks. There is an increase in risk in these types of investments, but for getting the most bang for your buck, they may be the better choice right now.
Europe
This summer was a quiet one regarding news about the European Debt Crisis. It seems like a distant memory that the economic world was going to come to an end because Greece could not make payments on their debt. Last week that lion roared again and now Ireland has the bulls-eye on their back. The soverign debt crisis that they are projected to go through is being compared to Greece's problems.
Overall
We are starting to hear chirpings from different media sources that a double-dip recession is now not likely to occur and there has been some positive comments that came out this month from some of the business leaders in this country
"I'm a huge bull on this country...we won't have a double-dip recession. I see our businesses coming back almost across the board...."
-Warren Buffett, Sept. 13, 2010
"I am very enthusiastic what the future holds for our industry and what our industry will mean for growth in other industries."
- Steve Ballmer, Microsoft
"Business at GE is improving. Signs across the world show growth improving, as evidenced by a rise in GE's orders."
- Jeffrey Immelt, GE
There is also plenty of talk on the other side about how the debt levels in this country are spiraling out of control and it's only a matter of time before we suffer a depression that makes the recession in 2008 and 2009 look like a walk in the park.
While I think there are some truth's to both side of the story, which is why I think in the short term we will probably continue to be in a volatile environment.
There are investment opportunities out there that can provide a good return especially when you consider the alternative of stashing it under a mattress. You do have to consider the risk you are taking to earn that additional income. There are no free lunches out there so if you reach for additional returns, most likely you are also increasing your risk levels. It is important to keep a good balance between the two and to be in investments that you are comfortable with the risk associated with them.