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Quarterly Newsletter
Volume XIV Issue III October 2011
Market Overview
The U.S. equity markets retreated over the past three months as the temporary economic soft patch seen this spring has yet to reaccelerate. Confidence began to erode in late July due to brinkmanship partisan politics over the U.S. debt ceiling. While a U.S. default was averted by raising the debt ceiling, the incident resulted in a downgrade of the U.S. credit rating. Fears of a sovereign default in Europe intensified over the quarter as various conflicting news heightened uncertainty. Additionally, Chinas effort to moderate inflation and defuse a potential real estate bubble has slowed economic growth in the worlds second largest economy. Waning confidence from political developments and fears of slower global growth overwhelmed positive earnings announcements resulting in declining stock prices (see table below). Nine of the ten Standard & Poors economic sectors were weaker by the end of the quarter. Only utilities managed to advance 0.2% The Federal Reserve revised their economic growth forecast downward for the year, but still expects the economy to improve. In late September, Fed Chairman Bernanke announced additional measures to help stimulate growth, specifically Operation Twist where the Fed will shift the securities on their balance sheet from shorter-term bonds into longer-term bonds and mortgage-backed securities in an effort to further reduce longer-term interest rates and mortgage rates (see table below). The U.S. dollar advanced over the quarter as a flight to safety from Europe resulted in stronger demand for dollar denominated U.S. Treasury bonds. A stronger U.S. dollar can suppress the prices of many global commodities priced in U.S. dollars. Wheat, corn, cotton, coffee, and oil prices all declined. Gold was one of the few commodities that rose (see table below). Developed international equity markets and emerging market equities also reversed gains seen earlier in the year mainly due to uncertainty in Europe and fears of slower growth in China. Grace Y. Lau, CFA Elliot C. Kauffman, CFA
U.S. Equity Returns Table
Source: Thompson Reuters
Index
10/2011 3 month 2 year 5 year 10 year 30 year 0.01% 0.24% 0.88% 1.79% 2.77%
10/2010 0.15% 0.41% 1.22% 2.47% 3.70% Gold (GLD) Crude Oil U.S. Dollar Index International Equity Markets (EFA) Emerging Equity Markets (EEM)
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