Fall foliage in Heidelberg Twp., Lehigh County, PA.
Looking down from the rocks at Bake Oven Knob on Blue Mountain. |
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THE MARKETS |
As we enter the home stretch for
2009, let's review what transpired in the financial markets over the past three
months.
|
Data as of
9/30/09
|
3nd
Quarter
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's
500 (Domestic Stocks)
|
15.0%
|
17.0%
|
-9.4%
|
-7.5%
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-1.1%
|
-1.9%
|
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DJ Global ex US
(Foreign Stocks)
|
19.2
|
35.3
|
4.3
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-3.6
|
5.7
|
1.9
|
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10-year Treasury Note
(Yield Only)
|
3.3
|
N/A
|
3.8
|
4.6
|
4.1
|
5.9
|
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Gold (per ounce)
|
6.6
|
14.5
|
12.6
|
18.4
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19.1
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12.8
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DJ-UBS Commodity Index
|
4.2
|
8.9
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-23.9
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-7.2
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-3.6
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3.3
|
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DJ Equity All REIT TR
Index
|
33.2
|
17.4
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-28.1
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-12.2
|
1.6
|
9.8
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Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested dividends
and the three-, five-, and 10-year returns are annualized; and the 10-year
Treasury Note is simply the yield at the close of the day on each of the
historical time periods.
Sources: Yahoo! Finance,
Barron's, djindexes.com, London Bullion Market Association.
Past performance is no
guarantee of future results. Indices are
unmanaged and cannot be invested into directly.
N/A means not applicable or not available.
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STOCK MARKET RALLY CONTINUED
|
Rising a
stunning 15.0%, the S&P 500 scored its largest quarterly gain since 1998,
according to The Wall Street Journal.
International markets did well, too, as the Dow Jones Global Index, excluding
the U.S. Total Stock Market Index, rose 19.2% in the third quarter. The gains
reflected continued improvement in some aspects of the worldwide economy, as
well as anticipation that the improvements will continue.
Year-to-date,
worldwide stock market returns have been remarkable. Since the March 9 low,
global stock markets have added about $20 trillion in market value, according
to an October 4 Bloomberg article. Now that's what we call "stimulus!" Here are
some of the winning markets over the past three months.
Country Returns Based on the Dow Jones
Global Indexes
Ranked by U.S. Dollar Performance
Winners
|
Country
|
Percentage
|
|
Lithuania
|
71.0
|
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Estonia
|
50.3
|
|
Hungary
|
39.1
|
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Peru
|
35.6
|
|
Cyprus
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35.6
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Source: Dow Jones
Indexes
Other Notables
|
Country
|
Percentage
|
|
Brazil
|
29.0
|
|
Russia
|
26.3
|
|
India
|
18.3
|
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U.K.
|
17.7
|
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China
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10.0
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Source: Dow Jones
Indexes
|
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INTEREST RATES DROPPED |
Disappointed with low short-term
rates and meager returns from perceived safe investments such as money market
accounts, many investors fled the short-end of the yield curve and moved out to
the longer - and riskier - end. So far, that has paid off as bond prices
generally rose in the third quarter, according to The Wall Street Journal.
If inflation becomes a problem or
the dollar goes into a freefall, you could see interest rates reverse course
and start to rise. Of course, that could lead to a potential setback for the
economy so the government is trying to walk a fine line between flooding the
economy with liquidity - to help it grow - but not flooding it too much that it
would lead to rampant inflation.
With the significant decline in
most interest rates over the past few months, investors appear comfortable with
how the government has walked this fine line. However, there is a definite
concern that down the road, perhaps one to three years from now, we could be in
for inflation that rivals the worst of the late 1970s/early 1980s period.
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THE VALUE OF THE DOLLAR DECLINED |
Big budget deficits, concerns about
inflation, and a desire for riskier assets helped push down the value of the
dollar last quarter. According to The
Wall Street Journal, the dollar dropped 4.1% against the euro, 6.8% against
the Japanese yen, and 9.5% against Australia's currency.
In an August 18 op-ed piece in the New York Times, Warren Buffett opined
that a continued rise in the debt-to-G.D.P. ratio could cause the U.S. dollar
to "melt." When Buffett gets involved, you know it's time to take notice.
Fortunately, if the dollar does liquefy beyond recognition (i.e., "melt"),
other investments may rise in value and we would do our best to position for
that accordingly.
|
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SUMMARY |
To say it's been a wild ride in the
financial markets this year is an understatement. We started the year with a
massive decline and then after March 9, the markets exploded to the upside on
faint signs of economic stabilization. While parts of the economy are working
better, unemployment is staying painfully high. Some economists expect
unemployment to hit or exceed 10.0% before it starts falling and that presents
some strong headwinds for the markets in coming months.
|
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THINK ABOUT IT
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"In times of
change, learners inherit the Earth, while the learned find themselves
beautifully equipped to deal with a world that no longer exists."
-- Eric Hoffer
|
|
 
Mary L. Nothelfer, CFP® Emilio
J. Morrone, CPA, CFP®
|
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*
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general.
*
The DJ Global ex US is an unmanaged group of non-U.S. securities designed to
reflect the performance of the global equity securities that have readily
available prices.
*
The 10-year Treasury Note represents debt owed by the United States Treasury to
the public. Since the U.S. Government is seen as a risk-free borrower,
investors use the 10-year Treasury Note as a benchmark for the long-term bond
market.
*
Gold represents the London
afternoon gold price fix as reported by the London Bullion Market Association.
*
The DJ Commodity Index is designed to be a highly liquid and diversified
benchmark for the commodity futures market. The Index is composed of futures
contracts on 19 physical commodities and was launched on July 14, 1998.
*
The DJ Equity All REIT TR Index measures the total return performance of the
equity subcategory of the Real Estate Investment Trust (REIT) industry as
calculated by Dow Jones.
*
Yahoo! Finance is the source for any reference to the performance of an index
between two specific periods.
*
Opinions expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
*
Past performance does not guarantee future results.
*
You cannot invest directly in an index.
*
Consult your financial professional before making any investment decision.
* This
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