October 4, 2011
TDG News: Miriam Passes Auditing & Attestation Section of the CPA Exam
We are very proud to announce that Miriam Tomasova, Associate Tax Accountant at the Dowling Group Wealth Management, has passed the very difficult Auditing and Attestation Section of the Uniform Certified Public Accountant (CPA) Exam. The CPA exam is comprised of four exams which must be passed in order to be considered for licensure as a CPA. The other requirements include education, experience and ethics. Miriam has two of the four exams remaining-please join us in wishing her continued success with her course of study.
Third Quarter Recession Worries
The word "volatile" has been so overused in the media, but it's hard to find a better way to describe recent movements in the financial markets. On any given day, the markets can rise or fall based on the latest thinking about euro-zone sovereign debt problems, a possible U.S. or Chinese recession, weak banks, inflation, deflation, or poor job numbers.
In the just completed third quarter, uncertainty (another overused word!) was in full bloom as the three major U.S. stock market indices posted double-digit declines, according to Barron's. Was the market sniffing out a new recession? Possibly. Last week, the respected Economic Cycle Research Institute was quoted in MarketWatch as saying, "The U.S. economy is headed for another recession that government intervention cannot prevent."
Along those same lines, Goldman Sachs said we may be moving from the 2007-2009 "Great Recession" to an upcoming "Great Stagnation." As quoted by Bloomberg, Goldman Sachs said a "Great Stagnation" would be characterized by "'high and sticky' unemployment, an average 0.5 percent growth rate in per capita gross domestic product, and stock markets that underperform historical averages."
But, not everyone agrees with that assessment. Warren Buffett told CNBC last week, "it's very, very unlikely we'll go back into a recession."
So, who are you going to believe? The market's jumpiness reflects the fact that smart people have completely different views of the economy.
|Data as of 9/30/11||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor's 500 (Domestic Stocks)||-0.4%||-10.0%||-1.3%||-1.0%||-3.2%||0.9%|
|DJ Global ex US (Foreign Stocks)||2.0||-18.7||-12.8||-1.1||-3.8||5.0|
|10-year Treasury Note (Yield Only)||1.9||N/A||2.5||3.8||4.6||4.5|
|Gold (per ounce)||-4.1||14.9||23.9||22.4||22.0||18.7|
|DJ-UBS Commodity Index||-2.0||-13.7||-0.1||-5.8||-2.5||4.0|
|DJ Equity All REIT TR Index||-1.5||-6.6||0.4||-2.1||-2.4||9.1|
Notes: S&P 500, DJ Global ex US, 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 or not available.
What to Watch for in the Fourth Quarter
Here are a few things that made the headlines in the third quarter and may affect the markets over the final three months of the year:
The S&P 500 index dropped 14.3 percent in the third quarter and is now down 10.0 percent for the
What to Watch: Third quarter corporate earnings will start rolling in soon and investors will scour them for any sign of weakness. For the past few quarters, strong earnings helped the market recover from the Great Recession. While some earnings weakness may already be priced in the market, we have to wait for the actual earnings to see how the market reacts.
Commodities and precious metals experienced significant price movements during the quarter. Gold prices
finished the quarter up 8 percent, while silver dropped 14 percent, according to MarketWatch. Oil prices
declined 17 percent for the quarter, while copper dropped a stunning 26 percent. On the agricultural side, corn
prices finished the quarter down 25 percent from their June 10 all-time high, according to The Wall Street
What to Watch: Recent declines in oil and copper prices are particularly noteworthy because they may presage a slowing worldwide economy. If the declines continue, it may not bode well for stock prices.
The housing market is still weak and that puts a significant drag on economic growth. According to the
most recent S&P/Case-Shiller Home Price Indices, housing prices around the country are back to where they
were in the summer of 2003.
What to Watch: Mortgage rates are at a record low yet the housing market is still in the doldrums, according to Bloomberg. Any sign that housing is turning the corner could bode well for the economy and the markets.
Interest rates on U.S. government securities dropped significantly in the third quarter as the flight to
safety continued. The yield on the 10-year Treasury note recently hit a paltry 1.67 percent-the lowest yield
since the 1940s. While low rates are good for businesses and our indebted government, it's bad for savers who
rely on interest income to support their living expenses.
What to Watch: If interest rates keep dropping in the fourth quarter, it may suggest investors are still in a fearful state. Ironically, it could be a good thing to see interest rates rise-as long as it's due to economic growth and not due to money printing by the Federal Reserve.
Sovereign debt woes in Europe and budget wrangling in the U.S. weighed on the financial markets in the
What to Watch: Continued bad news here could be very problematic. However, if there's any concrete resolution to the Euro-zone debt problems or a credible bi-partisan budget solution in Washington-look out. The financial markets could rally strongly on that kind of news.
With the above issues looming, you can see why the markets are a bit nervous. Yet, even if the market swoons in the fourth quarter, it could make valuations so compelling that it sets the stage for the next bull market.
Weekly Focus - Think About It
"I wanted a perfect ending. Now I've learned, the hard way, that some poems don't rhyme, and some stories don't have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what's going to happen next. Delicious Ambiguity."
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
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- 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.
- This newsletter was prepared by Peak Advisor Alliance.
- 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.
ADV & Investment Objectives:
Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.
IRS Circular 230 Disclosure:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.
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