Generally speaking, most Octobers are not that much different from other months, but three October market disasters give this month a scary history. The market crash on October 29, 1929 brought us the beginning of the Great Depression. We recently marked the 25th anniversary of the October 19, 1987 crash when the market lost 22.6 percent of its value in one trading day. If memories of these events were fading, the markets gave us October, 2008 and the S&P 500 was down 27 percent at one point during the month.
The October, 2012 market surprise came from the sky as hurricane Sandy shut down U.S. equity trading for two consecutive days. Historians had to go back to 1888 to find the last time weather caused a two-day stock market shutdown. The economic impact from this devastating storm will be felt well into 2013 as the clean-up, rebuilding and renovation processes begin. Stay tuned as economists try to measure the future economic influence from this storm.
After four presidential debates and the storm of the century, the markets once again survived another frightening October. Let’s take a look at the market results. The U.S. equity market, as measured by the S&P 500, had its third down month in 2012 declining by 1.85 percent, but is still up an impressive 14.29 percent this year. In addition to the S&P 500, other major indices also showed moderate monthly declines. The NASDAQ was down 4.07 percent, the Dow Jones Industrial Average declined 2.39 percent and commodities had a rough month losing 3.87 percent of its value. On the positive side, international stocks posted a small gain climbing 0.83 percent and closed the return differential versus the S&P 500 with an 11.00 percent year-to-date return. While there are economic and political clouds on the horizon, stocks represent one of the best relative value investment opportunities.
Interest rates remain suspended at these exceptionally low yields for another month. The credit sectors continue to outpace the government sectors as investors stretch for incremental yield by buying debt backed by corporate or mortgage-backed securities. During October the fixed income results were: high yield +0.83%, corporate/mortgage investment grade +0.43%, and U.S. Government -0.15%. Looking ahead to next year, keep your fixed income return expectations in line with the current coupon levels. Most of the capital appreciation in bonds is now in the rearview mirror.
With year-end only two short months away, many investors are transfixed on the unknown. You know the topics: who will win the election, which party will control congress, what does the looming fiscal cliff mean for the markets, have corporate earnings peaked, will housing rebound, will there be changes at the Federal Reserve, what impact from the European sovereign bank crisis, and what about the political tensions in the Middle East? Turbulent markets illicit strong emotions among investors often causing them to buy high and sell low. This time is not different, but it is critical to look beyond today’s headlines and focus on the long-term opportunities available in these markets.
Our goal at Nevada Retirement Planners is to provide your financial plan with a non-emotional long-term perspective aimed at keeping you properly invested throughout the various market and news cycles. Long-term growth and wealth creation requires vision, patience and a commitment to your financial plan. Stay your course and you will be rewarded.