DWM 3Q12 Market Commentary

 

fiscal cliff, multiple asset allocationWith current readings of anemic economic domestic growth, a recession widening in Europe, and a possible “Fiscal Cliff” on the way, it’s ironic how well the stock market and frankly most markets have done in 3Q12 and year-to-date (YTD) 2012.  It certainly didn’t hurt in mid-September when the Fed announced QE3 which is yet another round of government bond-buying designed to jumpstart the US economy and job market. Just how effective is this prolonged monetary policy? Weak US economic data, political unrest in the Middle East and Africa, even a slowdown in growth in China, are just a few of many things that show the situation really hasn’t gotten much better. At some point, the market will no longer reward this so-called “Quantitative Easing”.

But let’s talk about the good news for a little bit – the 3Q12 results:

The average US diversified stock fund posted a 5.3% return for the third quarter and is now up close to 13% Year-To-Date (“YTD”)! Results were also quite nice outside of the US with diversified international stock funds averaging 6.8% in the 3Q12 and now up almost 11% YTD. DWM equity portfolios enjoyed these run-ups.

Bonds chugged along with the riskier debt securities seeing more inflows and thus better returns. This was evidenced by the Barclays Capt’l US Aggregate Bond Index being only up a respectable 1.6% for the quarter (and almost 4% YTD) yet the Barclays US High Yield Index up 4.5% for the quarter (and 12% YTD). It should be noted that DWM fixed income portfolios have really enjoyed great performance both on the quarter and YTD and as such is reflected in your overall return. 

 Our DWM Liquid Alternatives portfolio showed it participates in bullish quarters like this, up around 3.6% for the qtr and up almost 9% YTD. This alternative part of the portfolio will really be needed when, not if, equities markets (and fixed income markets for that matter) turn bearish. 

Nice results, huh?! Unfortunately, that’s where most of the good news ends. Besides some improving housing data, which simply shows a bounce off a very low bottom, it really isn’t pretty out there. Now is not the time to “get out the Dom Perignon” and start dancing in the streets. Now is the time, for those who aren’t DWM clients, to make sure you have reviewed your financial plan, your risk tolerance, and your portfolio asset allocation to make sure it’s ready for the challenging near-term future. DWM clients already have these areas covered. We have many potential big risk events on the horizon: the Presidential Election, a possible replay of the debt ceiling debacle, and then the possible Fiscal Cliff, which is the term referring to the simultaneous spending cuts and tax increases that are slated to take place at the end of 2012 unless Congress takes action and actually comes to agreement on something. 

Frankly, this is a good example to show it’s impossible to time the stock market, as it does not necessarily operate in-line with fundamental data. It’s another reason why a well-diversified, low-cost, multiple asset allocation approach like ours is so prudent in times like these. Rather than trying to “time it”, we use disciplined strategies and vehicles to produce stable and steady returns over time, thereby helping you achieve your long-term financial goals. 

Hope to see you at one of our Fall seminars in either Charleston or Palatine where we will discuss these important items in more detail.  

Brett M. Detterbeck, CFA, CFP®