Market Comments for 10/3/2011

A rather cool September was even chillier for investors as stocks had a rough month. With signs that the economy is slowing down, Wall Street is starting to brace for another recession. October looks to be a pivotal month as stocks try and bounce back despite a host of hurdles but before the holiday shopping season. Hopefully markets are due to rally soon and adhere to the lyrics in rock band Green Day's hit song “Wake Me Up When September Ends.”

Last Week 

Fluctuating more than 100 points each day in both directions, stocks failed to hold any upside momentum. For the week, the Dow climbed 1.3% to 10,913. The S&P 500 fell 0.4%, to 1,131. The Nasdaq gave back 2.7% to 2,415.

News out of Europe was mostly positive as Germany approved the latest round of bailout funds for Greece . European stocks were up over 4% on the week. Meanwhile, the beaten-down housing sector actually showed some mild strength with prices ticking up for the fourth straight month. However, they are still down from last year's level.

Weekly jobless claims were also better than expected at below 400,000. However, markets have little faith in this data projecting a further trend and will need to see more evidence before believing in an improving jobs market.

On the corporate side of things, Amazon introduced the Kindle Fire tablet which should compete head-on with Apple's iPad. Finally, as if banks need more bad publicity, Bank of America plans to charge customers a $5 monthly debit card fee.

This Week

Friday's jobs report for September will be the key piece of economic data on tap this week although the latest reading on manufacturing will also be important. The ISM Manufacturing index needs to stay above 50 to avoid a slowdown that could negatively impact the economy.

It is still a little early for third quarter earnings reports but look for Monsanto, Marriott and Costco to issue their latest results. Apply may also present its new iPhone 5.

Portfolio Impact

The market's selloff Friday capped off a third quarter investors would certainly like to forget and more importantly not repeat. Stocks were down roughly 13% over this period and are firmly in negative territory entering the last three months of the year. Concerns over Europe , a lack of confidence in the political process and an economy teetering on the verge of another recession really drove down the price of risky assets.

If history is any guide, the outlook for the fourth quarter is promising. The November-December time period traditionally has provided positive returns and usually after facing a double-digit loss in a quarter, stocks bounce and go up the following quarter.

The outlook rests heavily on the health of the economy. Markets have priced in a recessionary scenario but corporate earnings forecasts could be lowered resulting in further downside risk.

Metals were hit hard in September leading us to find what we see as attractive entry points. With gold off 11%, we are adding a position there. Silver has also dropped and is attractive under $30. Gold is a hedge against currencies that have lost value due to high debt levels and is also a safe haven in these challenging times. Silver is riskier but tends to correlate with gold and has seen a pretty steep decline which could be overdone.

 

 

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