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Monthly Market Update - October 2013

Summary

The ghouls and ghosts of the season were hushed by positive returns and healthy economic reports this October despite the U.S. federal government shutdown. The partial government shutdown combined with the debt ceiling limit being reached had the world on watch making for nervous investors. The returns, however, were not reflective of that stress as global equities (MSCI World IMI Index) advanced 3.9% for the month and have gained 19.7% year-to-date. More specifically, the U.S. and developed international equity markets have gained more than 20% year-to-date, but recovering emerging market stocks are nearly flat. Bonds also reveled in positive territory during October as expectations of the Fed tapering remained off in the distance.
     

Economy

  The first estimate of third-quarter U.S. economic growth (real GDP) was better than expected at 2.8% as a result of positive contributions from personal consumption expenditures, private inventory investments, and exports.
•    Inflation (CPI) for the month of September rose slightly (up 0.2%) driven mainly by energy prices, which includes gasoline, electricity, and natural gas.
•    Overall, in the employment realm, the jobs report continued to be moderately positive. While the unemployment rate ticked upwards from 7.2% to 7.3% in October, employers added 204,000 jobs. The labor force, however, dropped by a surprising 720,000. While this large drop may have been overstated due to surveying difficulties, it does not change the overall trend toward lower labor force participation.
•    Consumer confidence fell to 71.2 in October, down from 80.2 in September. Not surprisingly, the partial government shutdown and fiscal uncertainty took a toll on the consumer.
   

 

U.S. Equity

•    The S&P 500 Index rose 4.6% in October and has posted a 25.3% year-to-date gain. All of the U.S. sectors experienced positive returns with telecommunications leading the surge at 8.5%.
•    U.S. small-cap stocks (Russell 2000 Index) edged up 2.5% pushing the year-to-date return to 30.9% making small-cap the top performer across market segments.
     

International Equity

•    Developed international large-cap stocks (MSCI EAFE Index) rose 3.4%. Some of the top-performing countries during the month were Spain (9.2%) and Italy (12.0%).
•    Worries about China’s slowing economy were thrown to the wayside this month, as Chinese stocks posted a gain of 2.5%. In aggregate, emerging markets (MSCI EM Index) outpaced developed markets for the month with a 4.9% return but lag on a year-to-date basis with a nearly flat return.
     

Fixed Income

•    Fixed income sectors posted positive returns for the month with corporate bonds being the bright spot.
•    The 10-year Treasury yield declined by 5 basis points to 2.57%; however, yields are still up 85 basis points from a year ago. The tapering of the Fed’s bond purchasing program still remains in question. As we have seen in the past months, the Fed’s timeline is far from concrete and is at the whim of future economic data.
     

Alternatives

•    Commodities (DJ UBS Commodity Index) declined 1.5% in October as grains, energy, and precious metals detracted from the overall return for a second month in a row.
•    Similar to other equities, global REITs (S&P Global REIT Index) had another strong month, advancing 3.9%. Global REITs are up 7.6% for the year, much less than other equity markets.
     
Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar, JP Morgan, Standard and Poor’s, Wells Fargo, Yahoo! Finance.
     
Market Returns - One Month as of 10/31/2013
     
Market Returns - Year-To-Date as of 10/31/2013
     
Market Returns - One Year as of 10/31/2013
     
Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-DJ UBS Commodity Index.

Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its timeliness, sequence, accuracy, adequacy, or completeness.
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