Weekly Update – October 15, 2012

Markets declined last week, retreating after initial third quarter earnings reports showed weakness and the World Bank cut its growth estimates in Asia. While the major indexes rallied a bit on Thursday and Friday, overall, investors decided that they didn’t have much to get excited about. For the week, the S&P declined 2.21%, the Dow lost 2.07%, and the Nasdaq lost 2.94%.[i]

While it can be hard to see the big picture when markets slide, it’s important to keep short-term pull-backs in perspective. To help us do this, we can reflect on how far we’ve come since Tuesday’s five year anniversary of the October 9, 2007 peak. In the last five years, markets have overcome a great deal: a catastrophic mortgage meltdown, a plunge that erased 50% of the market’s value, and significant global uncertainty.[ii] Since the darkest days of the “great recession” we’ve made enormous strides towards recovery, and currently, the S&P is within a few percentage points of its 2007 peak. Furthermore, we have reasons to be optimistic about the future. While we could hope for more robust growth, economic indicators are showing that the economy is gradually recovering. Unemployment is decreasing, manufacturing is increasing, and consumers are feeling more confident.[iii]

We definitely have a long way to go before we can state with certainty that the global economy has recovered. And, as many analysts have stated, the next few months could be turbulent for equity markets. Factors such as the ongoing crisis in Europe, weak fundamentals in Asia, poor corporate earnings reports, the presidential election, and the fiscal cliff may create challenges that test your discipline to stay the course.[iv]

On the bright side though, the S&P 500 has gained 11.8% since June 1, indicating that investors are ready to respond to positive news and that there may still be some upside potential this year.[v] In September, the U.S. economy gained 114,000 jobs, driving the unemployment rate down to 7.8%.[vi] The housing market is active, indicating that at least that corner of our economy is doing well.[vii] Although we cannot predict the future, these factors are very encouraging. We’ve certainly come a long way.

ECONOMIC CALENDAR:

Monday: Retail Sales, Empire State Mfg. Survey, Business Inventories

Tuesday: Consumer Price Index, Treasury International Capital, Industrial Production, Housing Market Index

Wednesday: Housing Starts, EIA Petroleum Status Report

Thursday: Jobless Claims, Philadelphia Fed Survey

Friday: Existing Home Sales