Just as August 2012 proved to be a much improved month for stock investors relative to the 2011 version, September 2012 managed a similar turnaround over the previous year’s incarnation. The S&P 500 Index rose 2.6% while foreign stocks, as measured by the MSCI EAFE Index increased 3.0%. Although the gains were broad-based, there was not the same divergence between aggressive and defensive assets like we witnessed in August and mentioned in last month’s edition of this letter.
The big news in September was the announcement by the Federal Reserve of the commencement of a third round of “quantitative easing” or “QE3.” This latest round of fiscal stimulus takes the form of $40 billion/month in mortgage purchases until the unemployment picture improves. That is very aggressive stimulus and a bit unprecedented as the Fed typically specifies a projected end date. Stocks performed well in the first two rounds of quantitative easing, and we expect no different the third time around. In fact, given the open-ended nature of the stimulus, stocks could continue to perform well for a long time…
Please watch the video below of our complete Market Analysis.