By Greg Naylor
October was an uneventful month for major economic news, although Superstorm Sandy closed the NYSE for two days. This was the first closure since 9/11. A mildly-disappointing earnings season, combined with uncertainty before the November elections, caused the overall U.S. stock market to pull back somewhat. By the numbers:
Stocks & Bonds
After a positive September, U.S. stocks pulled back. Interestingly, foreign stocks gained somewhat as measured by the MSCI EAFE. Inflation was up, and continued to be driven almost entirely by gas prices (most other price components are much tamer).
| S&P 500 Total Return | MSCI EAFE | BarclaysAggregateBond | Unadjusted CPI | |
| October | -1.85% | 0.76% | 0.20% | .44% |
| September | 2.58% | 2.60% | 0.14% | .55% |
| YTD | 14.29% | 7.01% | 4.20% | 2.28% |
Commodities & Currencies
NYMEX crude fell 6.5% in October to close at $86.24 per barrel. Many other commodities were also down in October, including gold (-3.1%), silver (-6.5%), corn (-0.2%), and wheat (-3.5). Consumer demand for many commodities remains soft, and so commodities markets have been largely dependent on easy monetary policy and global government stimulus. Without continued government stimulus from Asia and the U.S., commodities may have further to fall.
The dollar index in October was essentially unchanged, and remains almost flat for the year.
Economy
Unemployment ticked up a notch, from 7.8% to 7.9%. Interestingly, the economy actually added jobs in October. The unemployment rate moved up because people who had previously given up on finding work have re-entered the work force. This could be a positive sign, meaning that the economy is starting to warm up. Or it could just mean that some people have exhausted their savings.
There was some good news from the Institute for Supply Management, reporting that the manufacturing PMI in October was 51.7, up from 51.5 in September, indicating continued expansion. The Commerce Department also said that consumer spending increased by 2.0% in the 3rd quarter. On a down note, the National Association of Realtors (NAR) reported that the annual rate of existing-home sales in September decreased by 1.7%.
Summary
The economy continues to show more of the same – a little good news, and a little bad news. This seems to be consistent with a sluggish recovery. Government stimulus and central bank stimulus have been the two pillars underlying the nascent economic recovery. There is a justified concern over the ‘fiscal cliff’ which could compromise one of these two pillars – expansionary fiscal policy. Without compromise in Washington, it is possible we could re-enter a formal recession. On the plus side, we would simultaneously cut the federal deficit in half. As in any scenario, there would be winners and losers. The patient investor must stay committed to good companies that are poised for long-term growth, and able to weather this difficult and competitive business environment.
This material was prepared by Greg Naylor, and does not necessarily represent the views of Woodbury Financial or its affiliates. This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding any Federal tax liability. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The S&P500, MSCI EAFE and Barclays Aggregate Bond Index are indexes. It is not possible to invest directly in an index.
Investing involves risks and investors may incur a profit or a loss. Past performance is not an indication of future results.
Data Sources:
www.standardandpoors.com – S&P 500 information
www.msci.com – MSCI EAFE information
www.barcap.com – Barclays Aggregate Bond information
www.cmegroup.com – NYMEX crude prices
www.bloomberg.com – U.S. Dollar performance
www.realtor.org – Housing market data
www.bea.gov – GDP numbers
www.bls.gov – CPI and unemployment numbers
www.commerce.gov – Consumer spending data
www.napm.org – PMI numbers
www.coinnews.net/2012/10/31/gold-silver-prices-dive-in-october-us-bullion-coins-firms/
– Gold and silver price information
www.money.msn.com/market-news/post.aspx?post=144836a9-4549-4019-9bfb-6419b9dfe935/
–Commodities price information
About Greg Naylor: Greg is a partner and co-founder of Fiat Wealth Management, an independent financial advisory firm in Long Lake, Minnesota. He has been investing for over 7 years and enjoys sports, reading, singing, and spending time with family. Greg is a 2004 graduate of the University of Minnesota and lives in South Minneapolis with his wife Kat. Click here for more articles by Greg.
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