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* 60% All Country World Index/40% Barclays Aggregate
Volatility returned with a vengeance in the month of November, as global markets were in free-fall mid-month only to stage an impressive rally. Once again, Europe was the primary source of investor anxiety, augmented by the failure of the Super Committee to reach any resolution to our own burgeoning debt crisis. Anxiety quickly turned to hope, however, with the announcement of coordinated action by the Federal Reserve and other central banks around the world to pump liquidity into the European banking system.
While European debt woes remain front and center in investor’s minds (and rightly so), economic news on the domestic front continues to brighten. Black Friday kicked off the all-important holiday spending season with a bang. Consumers spent a record $11.4 billion, up 6.6% from year-ago levels. The four-day holiday weekend saw retail sales climb +8.7% to $50.06 billion.
Other recent economic data suggests improvements are becoming more broadly based as consumer confidence has bounced materially off recent lows, auto sales are continuing to gain momentum and manufacturing activity is re-accelerating. Perhaps most importantly, housing activity appears to be rising from the dead as pending home sales surged in response to near record low mortgage rates and very attractive housing affordability. It is premature to call a bottom in housing, yet any material improvement in this segment of the economy will go a long way to solidifying sustained economic growth as we enter 2012.
While it is encouraging to see signs of a strengthening domestic economy, Europe remains the elephant in the room. The coordinated intervention by global central bankers addressed short-term liquidity needs and may have averted an imminent banking crisis, yet the fundamental issues remain acute. The heavy lifting around proposed austerity measures has yet to commence, as does the period of subpar growth that is likely to follow. Whether or not an agreement can be reached by all 27 European Union member states on how to move forward remains to be seen but, at least for now, the most dire outcome appears to have been forestalled.
So what now? Investors remain on edge as many of the potential positive outcomes hinge on the role of effective fiscal and monetary policy around the globe. If history is any guide, this reliance can be both fleeting and wrought with disappointment (as kicking the proverbial can down the road has proven to be the path most followed). We need look no further than our own backyard and the failure of the Super Committee to reach any sort of consensus on the most pressing issues facing our own nation. Yet, despite heightened risk of policy makers disappointing once again, there are some interesting developments worth noting.
Perhaps the most interesting of these developments is the shift in policy beginning to emerge from central banks around the globe. The coordinated intervention was the most obvious, but the ECB, China and Brazil have also moved to a more accommodative stance in the form of bank reserve ratio cuts and outright lowering of short-term interest rates. This follows in the footsteps of the Federal Reserve. Should this more accommodative stance begin to engender investor confidence, consumer and business confidence may not be far behind. It may not take an enormous shift in sentiment to unleash a wave of pent-up demand driving consumer/business spending, and ultimately GDP growth materially higher.
While the scenario highlighted above would be a welcome respite for investors, it is by no means a foregone conclusion. We are on the verge of entering an election year and all that entails. Europe remains a wildcard and is subject to change without notice. Unemployment trends continue to disappoint and long-term debt issues are not going away any time soon. Nonetheless, as we move through the holiday season, recent trends in retail sales suggest some light at the end of the tunnel.
This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but CAPROCK makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns.
November Market Commentary
Thursday, Dec 1, 2011 Following October’s double digit gains, global equity markets pulled back in the month of November. While the S&P 500 was down only fractionally, European and emerging markets posted sizeable losses as banking system distress and economic worries continued to weigh on investor’s minds. Fixed income markets were essentially flat for the month. Market performance for the month is summarized in the following table:| Index | November | YTD | Index | November | YTD |
| S&P 500 (Total Return) | -0.22% | +1.08% | All Country World Index (Net) | -2.99% | -7.16% |
| MSCI EAFE (Net) | -4.85% | -11.30% | Barclays Aggregate | -0.09% | +6.67% |
| MSCI Emerging Markets (Net) | -6.66% | -17.43% | 60/40 Blend* | -1.83% | -1.45% |
Volatility returned with a vengeance in the month of November, as global markets were in free-fall mid-month only to stage an impressive rally. Once again, Europe was the primary source of investor anxiety, augmented by the failure of the Super Committee to reach any resolution to our own burgeoning debt crisis. Anxiety quickly turned to hope, however, with the announcement of coordinated action by the Federal Reserve and other central banks around the world to pump liquidity into the European banking system.
While European debt woes remain front and center in investor’s minds (and rightly so), economic news on the domestic front continues to brighten. Black Friday kicked off the all-important holiday spending season with a bang. Consumers spent a record $11.4 billion, up 6.6% from year-ago levels. The four-day holiday weekend saw retail sales climb +8.7% to $50.06 billion.
Other recent economic data suggests improvements are becoming more broadly based as consumer confidence has bounced materially off recent lows, auto sales are continuing to gain momentum and manufacturing activity is re-accelerating. Perhaps most importantly, housing activity appears to be rising from the dead as pending home sales surged in response to near record low mortgage rates and very attractive housing affordability. It is premature to call a bottom in housing, yet any material improvement in this segment of the economy will go a long way to solidifying sustained economic growth as we enter 2012.
While it is encouraging to see signs of a strengthening domestic economy, Europe remains the elephant in the room. The coordinated intervention by global central bankers addressed short-term liquidity needs and may have averted an imminent banking crisis, yet the fundamental issues remain acute. The heavy lifting around proposed austerity measures has yet to commence, as does the period of subpar growth that is likely to follow. Whether or not an agreement can be reached by all 27 European Union member states on how to move forward remains to be seen but, at least for now, the most dire outcome appears to have been forestalled.
So what now? Investors remain on edge as many of the potential positive outcomes hinge on the role of effective fiscal and monetary policy around the globe. If history is any guide, this reliance can be both fleeting and wrought with disappointment (as kicking the proverbial can down the road has proven to be the path most followed). We need look no further than our own backyard and the failure of the Super Committee to reach any sort of consensus on the most pressing issues facing our own nation. Yet, despite heightened risk of policy makers disappointing once again, there are some interesting developments worth noting.
Perhaps the most interesting of these developments is the shift in policy beginning to emerge from central banks around the globe. The coordinated intervention was the most obvious, but the ECB, China and Brazil have also moved to a more accommodative stance in the form of bank reserve ratio cuts and outright lowering of short-term interest rates. This follows in the footsteps of the Federal Reserve. Should this more accommodative stance begin to engender investor confidence, consumer and business confidence may not be far behind. It may not take an enormous shift in sentiment to unleash a wave of pent-up demand driving consumer/business spending, and ultimately GDP growth materially higher.
While the scenario highlighted above would be a welcome respite for investors, it is by no means a foregone conclusion. We are on the verge of entering an election year and all that entails. Europe remains a wildcard and is subject to change without notice. Unemployment trends continue to disappoint and long-term debt issues are not going away any time soon. Nonetheless, as we move through the holiday season, recent trends in retail sales suggest some light at the end of the tunnel.
This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but CAPROCK makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns.
