Third Quarter 2011: Mid-Quarter Market Review
As the first half of 2011 came to a close, expectations centered on continued volatility in the markets. In fact, global macroeconomic and political events reached a boiling point in the third quarter, leading to market swings to a degree of which we have not seen since the financial crisis of 2008-09. What have historically been the quiet summer months of July and August have been anything but. Between worries of global growth to the resolution of the US debt ceiling debate, it has been difficult to look beyond the negative headlines. Through the middle of the third quarter, the US equity market asmeasured by the S&P 500, was down 8.6% (see Exhibit 1). Non-US and small cap stocks havefared worse, falling 10.4% and 13.0%, respectively. Conversely, core bond marketshave done well with the broad market up 2.4%.
At the start of the third quarter, investors were broadly focused on four main risks: US economic growth, the European sovereign crisis, inflation in Emerging Market nations, and the US debt ceiling debate. Within the US, the most obvious catalysts of the drawdown in stocks were the extended debate in Washington on the debt ceiling and the subsequent downgrade of US debt by Standard & Poor’s. Both damaged sentiment markedly and led to the more sustained level of higher volatility. In Europe, while the positive developments within Greece towards the end of the second quarter briefly lifted spirits, Italian and Spanish bond yields spiked soon after, moving us into a new stage in the crisis.
Please click the link below for a PDF of full article.
 3Q 2011 Capital Markets Mid-Quarter Review.pdf |
