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Market Update: Strong Quarter Ends Weakly, Unanswered Questions Linger for End of Year

 

Frazier AllenThe stock markets have rallied nicely from the start of summer, recently hitting levels not seen since December 2007. Unprecedented steps taken by central bankers in the U.S. and across the globe have sent investors to the equity markets, and the results have been impressive.

The Dow Jones Industrial Average climbed 4.3% to finish the quarter at 13,437. The S&P 500 surged 5.8% to close the quarter at 1,441. But the Nasdaq enjoyed the biggest climb, advancing 6.2% to end the third quarter at 3,116. The energy, consumer discretionary, technology and telecommunications, and finance sectors led the charge, while utilities was the only major sector to lose ground.

The sentiment on Wall Street was further lifted by impressive gains in the overseas markets following the mid-September announcements by the European Central Bank to enact a significant bond-buying program. On the commodities front, gold advanced 10.5% and, not to be outdone, silver gained over 25% in the quarter.

However, the advance in the equities markets appears to run counter to forecasts by a number of experts. Many market watchers are wary of the anemic growth of the global economy, which is expected to expand by 2.2% this year, the slowest pace since the 2009 market contraction. And while the United States Gross Domestic Product (GDP) is expected to increase by 2.6% in 2013, it is below the 2.7% average annual growth for the last 15 years.

6/29/12 Close

9/28/12 Close

Change

Gain/Loss

DJIA

12,880.09

13,437.13

557.04

4.32%

NASDAQ

2,935.05

3,116.23

118.18

6.17%

S&P 500

1,362.16

1,440.67

78.51

5.76%

 

 

Furthermore, despite the robust finish by the markets in the third quarter, equities actually fell during the last week of September. That may be attributed to the ever-present concern that Europe’s debt crisis may continue to worsen and that its central banks’ stimulus measures may be inadequate. Yet, there may be another more fundamental reason for the late-September slide.

More and more investors, especially the baby boomers who now represent the most sizable group among retail investors who have already survived two major market debacles, have been more than content to sit on the sidelines during the present rally as they transition into retirement.

Add to that the looming specter of the U.S. fiscal cliff – the economic disruption that could ensue from the expiration of tax cuts and government spending reductions scheduled for the end of this year if Congress does not act – and we are likely to see a wider swath of investors retreating from the stock market.

In the end, despite the recent surge in the stock markets, we are still in a wait-and-see mode. As the rest of the year unfolds and uncertainty around the election and Congress taking action on tax issues persists, it’s a good time to review your financial plan to ensure you’re poised for whatever comes.

A disciplined, well-planned, long-term strategy remains the best approach.


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