The Markets

We’re going to do it . . .We’re going to do it . . .We’e not going to do it . . . Yet.

Last week, the U.S. Federal Open Market Committee gave stock markets a gift that, on a scale of thrills, might have been on par with Marilyn Monroe singing happy birthday to JFK. On Wednesday, the FOMC announced (without a trace of breathiness):

“Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

The ensuing euphoria pushed many of the world’s stock markets higher. The Dow Jones Industrial Average set a new record, Germany’s DAX closed at a new high, and Japan’s Nikkei delivered its best performance in eight weeks. Emerging markets also reaped positive benefits.

The Quantitative Easing or QE-sugar buzz abated when St. Louis Fed President James Bullard told Bloomberg the Fed may decide to begin buying fewer bonds at its next meeting in October. This surprised some as analysts already had predicted it wouldn’t happen until December which caused markets to slump a bit last Friday.

It’s possible that, by mid-October, the Fed’s ‘lather-rinse-repeat’ commentary on quantitative easing may have become background music for another event that has the potential to deliver a macroeconomic jolt: the U.S. congressional debate over the debt ceiling.

Data as of 9/20/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.3%

19.9%

17.1%

14.4%

7.2%

5.3%

10-year Treasury Note (Yield Only)

2.7

NA

1.8

2.7

3.8

4.2

Gold (per ounce)

2.3

-20.3

-23.3

1.8

8.7

13.4

DJ-UBS Commodity Index

-0.8

-7.7

-12.3

-2.5

-6.7

0.8

DJ Equity All REIT TR Index

2.3

6.5

8.4

12.3

7.2

10.2

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Best regards,

Jonathan K. DeYoe

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added. This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with the named broker/dealer. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.  The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Sources:

http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm

http://www.theguardian.com/business/2013/sep/19/world-markets-federal-reserve-stimulus-feelgood-factor

http://www.bloomberg.com/news/2013-09-20/bullard-says-weaker-data-prompted-borderline-fomc-taper-delay.html

http://www.reuters.com/article/2013/09/20/us-usa-fed-poll-economists-idUSBRE98J0UF20130920

http://www.washingtonpost.com/world/asia_pacific/asian-stock-markets-quiet-amid-public-holidays-2-days-after-federal-reserve-fueled-big-rally/2013/09/19/a3036758-21a7-11e3-ad1a-1a919f2ed890_story.html

http://www.economist.com/news/economic-and-financial-indicators/21586611-world-gdp

http://www.forbes.com/sites/simonmontlake/2013/07/14/chinas-2q-gdp-growth-slows-to-7-5/

http://www.economist.com/news/finance-and-economics/21584331-four-worlds-biggest-lenders-must-face-some-nasty-truths-giant-reality-check?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227

http://blogs.cfainstitute.org/investor/2013/08/26/resources-for-the-asian-currency-crisis-currency-and-capital-flows/

http://www.economist.com/news/finance-and-economics/21586569-error-apology-and-revision-spreadsheet-different

http://www.brainyquote.com/quotes/keywords/help.html