Sara J. Walker, CFA, Senior Vice President and Portfolio Management Team Leader with the Milwaukee office of Associated Trust Company, is known for her in-depth analysis of current market trends and objective outlook for the economy. Her informative points are derived through thorough economic research and highlighted in her monthly discussions and quarterly newsletter, the Economic and Investment Environment. Below are her highlights for and September:
• In the third quarter of 2012, equity investors faced their fears and decided the world was not ending after all. The S&P 500 index delivered a +2.58% return in September and a +6.35% return for the third quarter. On a year-to-date basis this index gained +16.45%, which, when compared to historical returns, represents an excellent year. The NASDAQ composite index returned +1.70% and +6.54% in the month and quarter periods, respectively. On a year-to-date basis, this index showed a return of +20.73%.
• Foreign markets gained serious ground in September and the third quarter. The Morgan Stanley EAFE (Europe, Australasia and the Far East) index moved up +2.99% in September and +7.00% in the quarter. Emerging markets also rose from their slumber. They gained +5.21% in September and +5.60% for the quarter. On a year-to-date basis, the EAFE index is up +10.53% and emerging markets are ahead +10.28%. When compared to just the last month, these numbers highlight the relative weakness of foreign markets early in the year.
• Bond markets were quiet. The Barclays Government/Credit index of Treasury and corporate debt instruments gained +0.07% in September and +1.73% in the third quarter. This rest period is understandable when the +4.43% year-to-date return is considered. Few forecasters could have predicted such a strong performance from the bond market when we began the year with already low interest rates. Performance was even stronger in the municipal bond arena. The Barclays Municipal index gained +0.60% in September, +2.31% in the third quarter and +6.07% for the year-to-date period.
• Strong comments from the European Central Bank (ECB) and the U.S. Federal Reserve contributed to the optimism in global stock markets. ECB Chief, Mario Draghi, announced the central bank would do “whatever it takes” to ensure continuation of the eurozone. Federal Reserve Chairman, Ben Bernanke, rose to the occasion and announced Quantitative Easing Part III. Most noteworthy was the lack of an end date. The Fed will be purchasing $40 billion of mortgage-backed securities each month until an appreciable dent is made in U.S. unemployment.
• Employment numbers continued to be mixed. September’s employment report was greeted enthusiastically by investors at first, but the bloom faded quickly. The unemployment rate did drop to 7.9% from 8.1% in August and 8.3% in July. The August unemployment numbers were largely driven by people completely exiting the labor force, which reduced the number of people counted as “unemployed.” September’s unemployment improvement was largely explained by an increase in the number of people working part-time. Both of these developments reflect a weak labor market.
• Like so many economic indicators, the diagnosis may be “Weak, but not weakening.” Significant revisions to earlier employment reports resulted in an average monthly job gain of +146,000 in the third quarter. This compares very favorably to the average monthly gain of +108,000 in the second quarter.