Monthly Market Monitor - October 2012

Market Indices1OctoberYear-to-Date
S&P 500-1.85%+14.29%
Russell 3000-1.72%+14.12%
MSCI EAFE+0.84%+11.52%
MSCI Emerging Markets-0.60%+11.66%
Barclays U.S. Aggregate Bond+0.20%+4.20%
Barclays Municipal+0.28%+6.36%
Barclays US Corporate High Yield+0.88%+13.11%

Following the worst hurricane on record to hit the eastern seaboard and a resulting two-day market closure, the S&P 500 index finished the month in negative territory, down nearly 1.9%. The benchmark equity index closed out the month at 1,412, down 3.6% from its 1,465 year high, but remains up over 14% on a YTD basis. After making landfall near Atlantic City, NJ on October 29th, Hurricane Sandy pushed a wall of surging floodwaters onto coastal shores from Delaware to Connecticut. Strategists believe the after effects from the hurricane could reduce U.S. GDP growth by 0.1%, or $25B, in the fourth quarter. If so, it would dampen economic growth to 1.5% from projections for 1.6%. In October, markets were primarily driven lower by a global storm of equity "risk off" uncertainty, induced largely by the still incomplete resolution of the European debt crisis, concerns over the upcoming November 6th elections and fears over the impending year-end "fiscal cliff" issues. While Wall Street believes the coming tax hikes and mandated government spending cuts can largely be avoided by Congressional compromise, the global slowdown spurred the Federal Reserve to recently comment that "strains on the world economy present significant downside risks."

Small-cap stocks underperformed large-caps last month, as the Russell 2000, a proxy for small-cap equities, lost 2.2% in October. Large-cap stocks continue to outpace small-caps on a year-to-date basis as the S&P 500 returned 14.3% versus 11.8% for the Russell 2000. Breaking a long running trend, value-oriented stocks beat their growth-oriented counterparts for the month and now lead for the year. The Russell 1000 Value Index lost 0.5% in October whereas the Russell 1000 Growth Index fell 2.9%. YTD, the Russell 1000 Value Index has returned 15.2% versus 13.4% for the Russell 1000 Growth Index.

In U.S. sector performance, eight of the ten S&P 500 major market groups declined last month, with Technology (-6.7%), Telecom (-4.3%) and Materials (-2.1%) falling the most. Financials (+1.9%) and Utilities (+1.4%) outperformed. Notably, losses in Apple (AAPL) led the bulk of weakness in Technology. For the year, all ten sectors continue to hold onto gains with Financials (+24%) and Telecom (+20.5%) taking top honors.

Overseas developed markets again outperformed the U.S. equity markets as the MSCI EAFE Index returned just under 1% in October. Emerging markets registered a slight loss as the MSCI Emerging Markets Index fell 0.6% last month. China, the world's second largest economy, reported its seventh straight quarter of slowing growth, spurring a 0.8% October loss on the nation's Shanghai Composite Index. Japan's Nikkei 225 stock index returned 0.7% on the month.

The yield on the benchmark 10-year Treasury swung as much as 22 basis points during the month, but ended just six basis points higher over last month, finishing the month at 1.69%. Overall, Treasuries fell last month as evidenced by a 0.2% loss, as measured by the Barclays US Government Bond Index. Returns on U.S. investment grade bonds again barely registered positive last month, as the Barclays US Aggregate Bond Index returned 0.2%. Municipal bonds, as measured by the Barclays Municipals Index, returned 0.3%, extending its YTD gain to 6.4%. Non-investment-grade corporate bonds posted solid results last month, as the Barclays US Corporate High Yield Index rose 0.9% in October. High yield corporate bonds continue to be this year's best performing fixed-income asset class.

  1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)

This information is compiled by Cetera Financial Group. No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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