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Stocks finish August on upswing after wild month

Raymond JamesClarksville, TN – A set of encouraging economic reports on Wednesday propelled stocks to their fourth straight winning session as one of the market’s wildest months ever came to a close.

The reports showed an increase in private-sector hiring, better-than-expected manufacturing activity in the Chicago area and an increase in factory orders nationwide – all good signs for investors who have alternated between fear and hope throughout the month. However, stocks were negatively impacted after the Justice Department sued to block AT&T’s proposed $39 billion takeover of T-Mobile USA Inc. and the Greek parliament said a worsening recession will weigh on the country’s debt.

Investors were rocked by a string of bad news early in the month as Washington’s brinksmanship over the debt ceiling was followed by Standard & Poor’s historic downgrade of the United States’ credit rating. Those events intensified an ongoing market correction that by August 8th saw the S&P 500 down 18% from its late-April high point. The market gyrated wildly all that week, with the roller-coaster ride continuing until August 22nd, when stocks finally settled down and began a recovery that left them essentially unchanged for the year but down for the month, as the chart below shows.

 

8/31/11 Close

7/29/11 Close

Change

Gain/Loss
DJIA

11,613.50

       12,143.24

-529.74

-4.36%

NASDAQ

2579.46

         2,756.38

-176.92

-6.41%

S&P 500

1218.89

         1,292.28

-73.39

-5.68%

 

Investors who had been hoping for additional stimulus from the Federal Reserve Board were disappointed last week when Fed Chairman Ben Bernanke, who one year ago announced the monetary stimulus known as QE2, this year said only that the central bank would keep interest rates low through 2013 and consider additional measures. With unemployment remaining high, investors are now looking ahead to September 7th, when President Obama has scheduled a major speech on jobs, and to the Fed’s next meeting, which has been expanded to two days and takes place September 20th-21st.

The market continues to be torn between two opposing viewpoints. Many investors fear that feeble U.S. economic growth could turn into another recession and that the eurozone’s debt problems could escalate, damaging the global economy. Others point to the reality that corporate earnings and balance sheets are very strong and note that authorities are clearly aware of the risks to economic growth. Two important economic indicators come in later this week, a national manufacturing activity survey on Thursday and on Friday, the Labor Department’s August employment situation report.

I am continuing to pay close attention to the economy and the overall investment environment, but if you have any immediate concerns about your financial plan, please give me a call.

Important Disclosures

Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Also municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Investing involves risk and investors may incur a profit or a loss.

US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.

Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.

Material prepared by Raymond James for use by its financial advisors.

The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business August 25th, 2011.

Frazier Allenhttp://www.raymondjames.com/frazierallen
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank 50 Franklin Street | Clarksville, TN 37040 | 931-553-2048
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