TRUCKEE, Calif. - The third quarter of 2012 was a good one for stocks and commodities. The markets were driven higher by announcements from the ECB, European Central Bank and by Ben Bernanke of the US Federal Reserve of virtually unlimited bond buying.The ECB announced their bond buying program on September 6 and the Dow Jones Industrial average rose 247 points on the news. Bernanke announced QE3, the third round of quantitative easing, on September 13 and the Dow rose 210 points that day.What the Fed is doing with this round of QE is buying back mortgage backed securities from banks; this has been good for the market because a lot of that money ends up getting invested back into stocks and commodities.With this round of QE the Fed will pump about $40 billion per month into the economy, and unlike the first two rounds of QE, there is not a definite date for the program to end - they will continue until the unemployment rate eases or there are signs of inflation that will need to be controlled.The ECB has embarked on a similar program that should continue to support the Euro for now and will pump massive liquidity into their financial system.These announcements were widely anticipated and stock and commodity performance has been quite strong. The S&P 500 was up 6.35 percent for the quarter and is up 16.44 percent year to date. That was the best third quarter for stocks since 2010. Gold rose 11 percent and also had its best quarterly performance since 2010. Silver increased by 25 percent. Heating oil rose by 14 percent and crude oil rose about 8 percent.The best performing sectors in the S&P were energy which increased by 9.52 percent, followed by consumer discretionary up 7.07 percent and information technology up 7.04 percent. Utilities were the worst performing group as they declined by -1.55 percent and are only up 1.05 percent year to date.Treasury bonds declined slightly over the quarter as interest rates rose. The 30-year Treasury bond yield rose from 2.69 percent at the start of the quarter to 2.83 percent and the ten year bond rate rose from 1.61 percent to 1.65 percent.Looking forward the markets will be focused on the usual slew of economic data including the monthly jobs report, the GDP and the CPI and PPI for signs of inflation. Corporate earnings will have to remain strong for the market to go higher and the earnings reporting season will kick off with Alcoa on October 8.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
October 4, 2012 | Back to: News