MONTHLY QUOTE
“One
must work and dare if one really wants to live.” –
Vincent Van Gogh
MONTHLY IDEA
Are you successful and want to turn
a secure net 5% return earned over 30 years of deposits into the
pre-tax equivalent of over 14%? If you move it out of your estate,
and avoid both 35% income tax and 55% estate taxes, you’re
there. I can show you how to do it. – Jim Hecker
MONTHLY
RIDDLE
You
see a large truck stopped just before the underpass of a low
bridge. The driver informs you that his truck is 1" higher
than the maximum clearance. This is the only road to his
destination. What is the easiest way to help him get his truck
through the underpass?
Last month’s riddle:
When can you add two to eleven and get one as the correct answer?
When can you add two to eleven and get one as the correct answer?
Last month’s answer:
On a clock face.
On a clock face.
THE
MONTH IN BRIEF
Stocks
do poorly in October – right? Well, they didn’t do so poorly
in October 2010, a month in which the S&P 500 gained 3.69%.1
Wall Street considered the mid-term elections, the fall earnings
season and the all-but-certain resumption of quantitative easing
from the Federal Reserve with a lot of anticipation (and a little
bit of anxiety). Away from Wall Street, unemployment remained high
and consumer spending seemed to be slowing again. With Americans
losing faith in incumbent politicians and their claims of moderate
economic growth, the Fed and the Obama administration thought
about a proper response.
DOMESTIC
ECONOMIC HEALTH
It seems almost a given that the Federal Reserve will intervene in the economy again, albeit too late to have an effect on mid-term elections. The latest Commerce Department data showed personal spending up 0.2% for September, not exactly the 0.4% gain economists polled by Bloomberg forecast. Personal wages declined by 0.1% in September, and there hadn’t been a reversal in that category since July 2009. Speaking of reversals, the most respected consumer sentiment survey in America reversed course in October – the University of Michigan’s index fell to 67.7, the lowest reading since November 2009. (The Conference Board’s index did show some improvement, rising 1.6% to 50.2.) 2,3,4
It seems almost a given that the Federal Reserve will intervene in the economy again, albeit too late to have an effect on mid-term elections. The latest Commerce Department data showed personal spending up 0.2% for September, not exactly the 0.4% gain economists polled by Bloomberg forecast. Personal wages declined by 0.1% in September, and there hadn’t been a reversal in that category since July 2009. Speaking of reversals, the most respected consumer sentiment survey in America reversed course in October – the University of Michigan’s index fell to 67.7, the lowest reading since November 2009. (The Conference Board’s index did show some improvement, rising 1.6% to 50.2.) 2,3,4
The
Commerce Department estimated third-quarter GDP at +2.0%, which
mitigated some of the anxieties about a double-dip recession.
However, more pronounced growth was needed to make a dent in the
nation’s 9.6% jobless rate.5,6
The manufacturing sector was healthy, as evidenced by the October
Institute for Supply Management report - a 56.9 reading, up 2.4%
from September and marking the fifteenth straight month of growth.
ISM’s October service sector index improved 1.1% to 54.3.7,8
We
got word that consumer prices rose only 0.1% in September; the
core Consumer Price Index was flat, just as it had been in August.
Producer prices were up 0.4% for September according to the Labor
Department, with core PPI rising only 0.1%. If retailers were
keeping prices low to promote a little demand, it was aiding
retail sales – the Commerce Department said they were up 0.6% in
September following a revised 0.7% advance in August.9,10.11
The
Fed made no move with interest rates, but certainly held Wall
Street’s attention for most of the month with signals of
quantitative easing – and an October 25 Wall
Street Journal
article asserting that “ it would gradually buy a few hundred
billion dollars worth of Treasuries over the next several months”
was accurate.12
GLOBAL
ECONOMIC HEALTH
Confidence was up in Europe, at least according to the Eurozone’s October index of executive and consumer sentiment. It rose to 104.1, the highest level since December 2007. The key German business confidence index improved along with European manufacturing growth. In the middle of the month, the International Monetary Fund forecast a +1.7% GDP this year for the euro-region economy, which would be a great improvement from the -4.1% mark of 2009. The IMF also predicted +3.3% 2010 GDP for Germany, the EU’s biggest economy. The European Central Bank kept its key interest rate at 1.0%.13
Confidence was up in Europe, at least according to the Eurozone’s October index of executive and consumer sentiment. It rose to 104.1, the highest level since December 2007. The key German business confidence index improved along with European manufacturing growth. In the middle of the month, the International Monetary Fund forecast a +1.7% GDP this year for the euro-region economy, which would be a great improvement from the -4.1% mark of 2009. The IMF also predicted +3.3% 2010 GDP for Germany, the EU’s biggest economy. The European Central Bank kept its key interest rate at 1.0%.13
A
Goldman Sachs analysis forecast China’s GDP at +10.1% for 2010
and +10.0% for 2011; China’s 3Q 2010 GDP was officially +9.6%.
Japan, which had managed a +1.5% GDP for the second quarter, saw
the yen touch a 15-year high against the dollar last month.14,15
Manufacturing leapt north in both India and China; India’s HSBC
Purchasing Managers’ Index went to 57.2 from September’s 55.1
reading, and China’s benchmark PMI improved from 53.8 to 54.7.16
WORLD
MARKETS
Most of the world’s benchmarks posted October gains. Leading the pack: the Shanghai Composite’s A Shares index, which rose +14.1%. Coming in second: Argentina’s MERVAL at +11.5% for the month. Other emerging market indices did quite well, with Brazil’s Bovespa going +6.9%, Mexico’s IPC All Shares at +6.4% and Russia’s RTSI at +6.2%. (Indonesia’s JSX Composite climbed 4.0% last month, and the Hang Seng advanced 3.2%; India’s Sensex gained only 0.2%.) Away from the emerging markets, Germany’s DAX gained 5.1% for the second month in a row; France’s CAC 40 pulled off a 2.6% October gain. Canada’s TSX Composite gained 3.1% and England’s FTSE 100 gained 1.9%. However, Japan’s TOPIX sank 4.3%. The twin MSCI indices did well: in U.S. dollar terms, the World Index gained 3.65% while the Emerging Markets Index advanced 2.81%.17,18
Most of the world’s benchmarks posted October gains. Leading the pack: the Shanghai Composite’s A Shares index, which rose +14.1%. Coming in second: Argentina’s MERVAL at +11.5% for the month. Other emerging market indices did quite well, with Brazil’s Bovespa going +6.9%, Mexico’s IPC All Shares at +6.4% and Russia’s RTSI at +6.2%. (Indonesia’s JSX Composite climbed 4.0% last month, and the Hang Seng advanced 3.2%; India’s Sensex gained only 0.2%.) Away from the emerging markets, Germany’s DAX gained 5.1% for the second month in a row; France’s CAC 40 pulled off a 2.6% October gain. Canada’s TSX Composite gained 3.1% and England’s FTSE 100 gained 1.9%. However, Japan’s TOPIX sank 4.3%. The twin MSCI indices did well: in U.S. dollar terms, the World Index gained 3.65% while the Emerging Markets Index advanced 2.81%.17,18
COMMODITIES
MARKETS
The bull market in precious metals showed no signs of slowing down. Palladium prices gained 12.9% last month. Platinum and silver prices both gained 2.9% in October, with silver ending the month at a 30-year high ($24.56 per ounce). Gold hit another record close on October 14 ($1,377.60 per ounce) on the way to a 3.7% October advance.19
The bull market in precious metals showed no signs of slowing down. Palladium prices gained 12.9% last month. Platinum and silver prices both gained 2.9% in October, with silver ending the month at a 30-year high ($24.56 per ounce). Gold hit another record close on October 14 ($1,377.60 per ounce) on the way to a 3.7% October advance.19
Crop
futures are volatile with the seasons, and there were some big
gainers as we moved into fall in the northern hemisphere. Sugar
advanced 23.0% in October, and cotton rose 22.0%. Corn gained
17.4%. Oil had a decent month, with futures gaining 1.83% on the
NYMEX. The U.S. Dollar Index lost 2.22% for the month.
78.79.20,21,22
REAL
ESTATE
Home sales basically had nowhere to go but up – so up they went. Existing home sales rose by a gratifying 10.0% in September, while new home sales climbed 6.6% in that month with the median price up 3.3% from 12 months ago. The August S&P/Case-Shiller home price index showed a year-over-year gain of 1.7%. However, another wave of foreclosures and persistent unemployment and underemployment still stood in the way of any pronounced housing sector recovery.23,24,25
Home sales basically had nowhere to go but up – so up they went. Existing home sales rose by a gratifying 10.0% in September, while new home sales climbed 6.6% in that month with the median price up 3.3% from 12 months ago. The August S&P/Case-Shiller home price index showed a year-over-year gain of 1.7%. However, another wave of foreclosures and persistent unemployment and underemployment still stood in the way of any pronounced housing sector recovery.23,24,25
If
your home was worth more than its mortgage, it was a great time to
refinance. Comparing Freddie Mac’s September 30 Primary Mortgage
Market Survey with the October 28 edition, average rates on
15-year FRMs dropped still further from 3.75% to 3.66%. Average
rates on 30-year FRMs went from 4.32% to 4.23%. By October 28,
average rates on 5-year ARMs (3.41%) and 1-year ARMs (3.30%) had
moved lower as well.26
LOOKING
BACK…LOOKING FORWARD
It is always nice when you can describe a market month as the “best since…”, and if you are considering assorted Octobers, we can apply a couple of superlatives to October 2010. Last month constituted the finest October for the S&P 500 since 2003 and the best October for the Dow since 2006.1
It is always nice when you can describe a market month as the “best since…”, and if you are considering assorted Octobers, we can apply a couple of superlatives to October 2010. Last month constituted the finest October for the S&P 500 since 2003 and the best October for the Dow since 2006.1
| % CHANGE |
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+6.62
|
+3.06
|
+11.60
|
+0.26
|
NASDAQ
|
+10.50
|
+5.86
|
+19.54
|
-2.14
|
S&P
500
|
+6.11
|
+3.69
|
+10.99
|
-1.54
|
| REAL YIELD |
10/29
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
0.50%
|
1.50%
|
2.01%
|
4.03%
|
Sources: cnbc.com, bigcharts.com, ustreas.gov, bls.gov - 10/29/101,27,28,29
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
So
the elections are done, and the market pretty much priced them in
along with the second installment of Fed easing. What might the
rest of November hold? Well, the market could follow history and
go into rally mode – as Standard & Poor’s chief investment
strategist Sam Stovall recently cited in the Wall
Street Journal, the
Dow has climbed an average of 17.1% in calendar years following
mid-term elections since World War II.30
Of course, stocks have defied historical patterns for the past
couple of years, so who knows if 2011 will give investors that
kind of gift. When you consider that some major financial and
political issues probably won’t be resolved until December or
January (the estate tax, the EGTRRA/JGTRRA income tax cuts and
health care costs), you get the sense that Wall Street might watch
and wait for the next couple of months before taking any kind of
strong turn.
UPCOMING
ECONOMIC RELEASES:
What’s
on tap for the rest of the month? Coming up, the October jobless
report and September pending home sales (11/5), September
wholesale inventories (11/9), the preliminary November University
of Michigan consumer sentiment survey (11/12), October retail
sales and September business inventories (11/15), October PPI and
September industrial output (11/16), October CPI, housing starts
and building permits (11/17), the Conference Board’s October
leading indicator index (11/18), October existing home sales and
the second estimate of 3Q GDP (11/23), a big day just before
Thanksgiving with October consumer spending, new home sales and
durable goods orders plus the November FOMC minutes (11/24), and
then the September Case-Shiller home price index and the
Conference Board’s November poll of consumer confidence (11/30).
*Registered Representative and Financial Advisor of Park Avenue Securities LLC PAS.
Securities products/services and advisory services offered through PAS a registered Broker-dealer and investment advisor.
Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY.
PAS is an indirect wholly owned subsidiary of Guardian.
Wealth Design Group is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC.
PAS is a member FINRA, SIPC.
This
material was prepared by Peter Montoya Inc., and does not
necessarily represent the views of the presenting party, nor
their affiliates. This information should not be construed as
investment, tax or legal advice. The Dow Jones Industrial Average
is a price-weighted index of 30 actively traded blue-chip stocks.
The NASDAQ Composite Index is an unmanaged, market-weighted index
of all over-the-counter common stocks traded on the National
Association of Securities Dealers Automated Quotation System. The
Standard & Poor's 500 (S&P 500) is an unmanaged group of
securities considered to be representative of the stock market in
general. It is not possible to invest directly in an index. NYSE
Group, Inc. (NYSE:NYX) operates two securities exchanges: the New
York Stock Exchange (the “NYSE”) and NYSE Arca (formerly
known as the Archipelago Exchange, or ArcaEx®, and the Pacific
Exchange). NYSE Group is a leading provider of securities
listing, trading and market data products and services. The New
York Mercantile Exchange, Inc. (NYMEX) is the world's largest
physical commodity futures exchange and the preeminent trading
forum for energy and precious metals, with trading conducted
through two divisions – the NYMEX Division, home to the energy,
platinum, and palladium markets, and the COMEX Division, on which
all other metals trade. The Shanghai A-Share Stock Price Index is
a capitalization-weighted index. The index tracks the daily price
performance of all A-shares listed on the Shanghai Stock Exchange
that are restricted to local investors and qualified
institutional foreign investors. The MERVAL Index (MERcado de
VALores, literally Stock Exchange) is the most important index of
the Buenos Aires Stock Exchange. The IPC Index is the main
benchmark stock index of the Mexican Stock Exchange (BMV: BOLSA),
which is Mexico's only stock exchange. The RTS Index (RTSI) is an
index of 50 Russian stocks that trade on the RTS Stock Exchange
in Moscow. The JSX Composite is an index of all stocks that trade
on the Indonesia Stock Exchange. The Hang Seng Index is a
free-float capitalization-weighted index of selection of
companies from the Stock Exchange of Hong Kong. BSE Sensex or
Bombay Stock Exchange Sensitivity Index is a value-weighted index
composed of 30 stocks that started January 1, 1986. The DAX 30 is
a Blue Chip stock market index consisting of the 30 major German
companies trading on the Frankfurt Stock Exchange. The CAC-40
Index is a narrow-based, modified capitalization-weighted index
of 40 companies listed on the Paris Bourse. The S&P/TSX
Composite Index is an index of the stock (equity) prices of the
largest companies on the Toronto Stock Exchange (TSX) as measured
by market capitalization. The FTSE 100 Index is a share index of
the 100 most highly capitalized companies listed on the London
Stock Exchange. The Tokyo stock Price IndeX, commonly known as
TOPIX, tracks all domestic companies of the Tokyo Stock
Exchange’s First Section. The MSCI World Index is a free-float
weighted equity index that includes developed world markets, and
does not include emerging markets. The MSCI Emerging Markets
Index is a float-adjusted market capitalization index consisting
of indices in more than 25 emerging economies. The US Dollar
Index measures the performance of the U.S. dollar against a
basket of six currencies. Additional risks are associated with
international investing, such as currency fluctuations, political
and economic instability and differences in accounting standards.
All information is believed to be from reliable sources; however
we make no representation as to its completeness or accuracy. All
economic and performance data is historical and not indicative of
future results. Market indices discussed are unmanaged. Investors
cannot invest in unmanaged indices. The publisher is not engaged
in rendering legal, accounting or other professional services. If
assistance is needed, the reader is advised to engage the
services of a competent professional.
Citations.
1
– cnbc.com/id/39916022 [10/29/10]
2
-
blogs.barrons.com/stockstowatchtoday/2010/11/01/markets-open-higher-despite-spending-woes
[11/1/10]
3
-
theatlantic.com/business/archive/2010/10/consumer-confidence-remains-weak-going-into-midterms/65173/
[10/26/10]
4
-
dailyfinance.com/story/consumer-sentiment-dips-on-economic-concerns-ahead-of-elections/19694879/
[10/29/10]
5
– abcnews.go.com/Business/wireStory?id=12000624 [10/29/10]
6
- bls.gov/news.release/empsit.nr0.htm [10/8/10]
7
- ism.ws/ISMReport/MfgROB.cfm [11/1/10]
8
- ism.ws/ISMReport/NonMfgROB.cfm [11/3/10]
9
–
bloomberg.com/news/print/2010-10-15/consumer-prices-in-u-s-rise-0-1-in-september-core-unchanged.html
[10/15/10]
10
–
foxbusiness.com/markets/2010/10/14/september-producer-prices-rise/
[10/14/10]
11
–
bloomberg.com/news/2010-10-15/u-s-consumer-confidence-unexpectedly-decreases-to-67-9-in-michigan-index.html
[10/15/10]
12
–online.wsj.com/article/SB10001424052702303891804575576533845166848.html
[10/25/10]
13
-
bloomberg.com/news/print/2010-10-28/confidence-in-europe-s-economy-rises-more-than-forecast-on-manufacturing.html
[10/28/10]
14
- english.peopledaily.com.cn/90001/90778/90862/7186959.html
[11/3/10]
15
-
blogs.wsj.com/japanrealtime/2010/10/21/its-jrt-official-china-the-new-no-2-economy/
[10/21/10]
16
-
ft.com/cms/s/0/1c954a1a-e55f-11df-8e0d-00144feabdc0.html
[10/1/10]
17
-
emerginvest.com/WorldStockMarkets/Countries.html [10/29/10]
18
-
mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
[10/29/10]
19
- bullionpricestoday.com/bullion-prices-soar-in-october-2010/
[11/3/10]
20
-
blogs.wsj.com/marketbeat/2010/10/29/data-points-energy-metals-391/
[10/29/10]
21
-
forexyard.com/en/news/COMMODITIES-Markets-end-session-month-with-modest-gains-2010-10-29T212601Z
[10/29/10]
22
–
online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_curr_dtabnk&symb=DXY
[11/3/10]
23
–
businessweek.com/news/2010-10-25/u-s-existing-home-sales-rise-more-than-forecast.html
[10/25/10]
24
-
blogs.wsj.com/developments/2010/10/27/new-home-sales-stuck-at-rock-bottom/?mod=google_news_blog
[10/27/10]
25
-
bloomberg.com/news/2010-10-26/home-prices-in-20-u-s-cities-rose-less-than-forecast-case-shiller-says.html
[10/26/10]
26
– freddiemac.com/pmms/index.html?year=2010 [11/3/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F29%2F09&x=0&y=0
[10/29/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F29%2F09&x=0&y=0
[10/29/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F29%2F09&x=0&y=0
[10/29/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=DJIA&close_date=10%2F30%2F00&x=0&y=0
[10/29/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=COMP&close_date=10%2F30%2F00&x=0&y=0
[10/29/10]
27
-
bigcharts.marketwatch.com/historical/default.asp?detect=1&symbol=SPX&close_date=10%2F30%2F00&x=0&y=0
[10/29/10]
28
-
ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml
[10/29/10]
29
-
treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf
[7/12/00]
