I’ve been reviewing my clients' September 30 investment statements and I’m sure you have received your copies by now too. If you're a local reader and would like to review your accounts together or would like to recieve a second opinion from an independent financial advisor, please contact me. In the meantime, this post will attempt to provide perspective on the economy and financial markets over the past 90 days.
Tug-o-War
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| Growth vs. Sentiment |
Economic Growth: While the economic data doesn’t point to robust economic growth, the gross domestic product (GDP) is increasing. In the second quarter, GDP was up 1.3% and the third quarter is on pace to grow at a 2–2.5% rate, the strongest growth rate so far this year. Furthermore, the Index of Leading Economic Indicators (LEI) suggests continued slow growth and that a recession is unlikely. Still, the economy is expanding at a pace that is well below historical averages at this point in an economic recovery. 1
Investor and Consumer Sentiment: For some, the slow pace of growth probably feels like a recession. Despite the lack of recessionary indicators, consumer sentiment was at near 30-year lows and this pessimism overwhelmed the market in the third quarter. 2
The third quarter was ugly with extreme volatility and the sharpest decline since the first quarter of 2009. The main drivers of the decline seem to have been European debt worries and the waning confidence on both Main Street and Wall Street as analysts began to second-guess the recovery.
Below are results for key markets. These are in local currencies, so the effect of swings in the dollar is not reflected.
Looking Forward
So that’s what’s behind us – the key question is what’s ahead. What will have to happen to help this market climate improve in the coming months? There are three potential catalysts that might emerge.
- A decisive and truly unified effort by the EU to address the debt crisis.
- A strong corporate earnings season featuring frequent, pleasant surprises.
- A stream of data vouching that the economy is still growing.
Economic challenges and market volatility remain it is important to remain cautious. But for those investors who need growth to achieve their long-term goals, it is equally important to take a longer view and know that fund managers are seeing many outstanding companies available at inexpensive prices. For investors with cash on the sidelines, now may be the time to start putting some of that money to work.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
1. Source: Bureau of Economic Analysis, Haver Analytics 10/02/2011
2. Source: University of Michigan Consumer Sentiment Report 09/14/2011
3. Source: usatoday.com/money/world/story/2011-10-03/world-markets-down/50640738/1 [10/04/2011]
