Investors entered the month of September fearful of past downturns, still haunted by the catastrophic decline in 2008. But yet again, the markets did the opposite of what many were expecting, posting the highest returns for the month since 1939, and the third best single monthly return in 10 years, according to the Associated Press. The Russell 3000 rose 9.44% in September, up 4.78%--for the year.
The good news could be seen in all sectors of the Stock Market - large caps, mid caps, international and emerging markets.
Some of the market gains appear to reflect good news in the economy. The Bureau of Economic Analysis reported on September 30 that it was revising its estimate of second-quarter growth in the economy: up 1.7%, after an increase of 3.7% in the first three months of the year. Corporate profits increased $47.5 billion in the second quarter after rising $148.4 billion in the first quarter.
International investors are beginning to recover some of the losses from earlier in the year. The MSCI EAFE index, which measures the composite returns of the developed nations (although it excludes Canada, for some reason) was up 15.79% for the quarter, but the index is down overall 1.25% heading into the fourth quarter. Meanwhile, emerging markets are still booming.
Treasury Bond prices rose slightly as the yield on 10-year maturities fell from 2.95% on June 30 to 2.51% at the end of the quarter. Remarkably, the yield on 6-month Treasury notes is still hovering at 0.19%. Yield to maturity on 30-year maturity issues were yielding 3.69% as the quarter ended.
It should be noted that the U.S. markets are close to finally climbing out of the deep holes they fell into in 2008 and early 2009. The 3-year performance of various indices, for the period ending September 30, is within striking distance of positive territory. If the markets offer gains in the last quarter similar to what we experienced in the third, investors who managed to stay in the market through the turmoil might be able to celebrate a full recovery of their portfolio value.
Meanwhile, it's helpful to remember that at the start of the quarter, people were questioning the viability of U.S. and global markets after the near-meltdown of Greece, Portugal, Spain and other Southern European economies. Each quarter, each year, seems to bring a new thing to worry about. But looking longer term, the U.S. equities markets have managed to post long-term gains despite some fairly serious disruptions, including World War II, the Cold War, the conflict in Vietnam, stagflation and the oil shocks of the 1970s, the market crash of 1987, the bursting of the tech stock bubble, and the subprime mortgage meltdown and collapse of Bear Stearns, Lehman Brothers and AIG in 2008.
Indeed, if you look at the long-term movements in the stock market since the Great Depression, all of those events, which seemed pretty dire at the time, look like blips on the screen, small dips in the long-term growth of value in American and global publicly-traded enterprises.
There is no doubt that there will be other events in the future which will seem to endanger--or at least derail--the long-term growth of capitalism. But based on the history of the past two centuries, one might feel confident that whatever challenges await us, people in all sectors of the U.S. economy will find ways to build additional value.
The final three months of the year may bring the market indices back up to pre-meltdown levels, or they may disappoint. We simply cannot predict the short-term movements in stock prices and with all of the uncertainty in the political and tax arenas, we have chosen to focus our attention on protecting clientâ€™s portfolios. We shall see what the 4th quarter brings as the markets digest the elections in November.
Edward J. Kohlhepp, CFPÂ®, ChFC, CLU, CPC, MSPA
Edward J. Kohlhepp, Jr., CFPÂ®, MBA
Quote: â€śThe safe way to double your money is to fold it over once and put it in your pocket.â€ť
~ Frank Hubbard
The views expressed are not necessarily the opinion of Cambridge Investment Research and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. No strategy can assure a profit nor protect against loss.
GDP estimates, inflation and corporate profits: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp
Individual country data: http://www.emerginvest.com/WorldStockMarkets/Countries.html
Treasury market rates: http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml
Treasury Bond returns: http://www.latimes.com/business/la-fi-1001-markets-quarter-20101001,0,2854846.story
Best September since 1939: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/09/30/national/a121755D84.DTL&type=business