Weekly Market Recap
October 10, 2011
• The European debt crisis remains unresolved.• Militants attacked U.S. soldiers in Afghanistan.
• The unemployment rate was unchanged at 9.1%• Both ISM indices were better than expected.• Vehicle and chain store sales beat estimates.• Next Week: Intl Trade, Retail Sales, Sentiment.
Thought of the Week
The money supply increased by 10.3% year-over-year inAugust 2011. While this volatility is a little unsettling, webelieve that much of this increase was driven by fear,rather than an increase in bank lending, as investorsmoved cash into more liquid assets. Part of this trendcan be seen in outflows from institutional money marketfunds. These funds lost $80bn of assets in August, andwe believe this money was moved into the componentsof M2. As shown in this week’s chart, a “Modified M2”suggests that year-over-year money supply growthwould have been 9.3% if this redistribution of assetshad not occurred, and perhaps even lower if we couldproperly estimate the movement of cash looking for amore liquid home. It does not appear that the economyis on the brink of stronger growth or rampant inflation,but rather than investors were simply looking for a saferplace to store their cash.
Question of the week:
The economy lost approximately 8.8bn jobs during themost recent recession; as of September, how many jobshad we added back?
Prior week's question:
Last Thursday, Freddie Mac reported that the averageconventional 30-year fixed rate mortgage hit an all-timelow; what was this all-time low?
Answer to prior week's question:
The conventional 30-year fixed averaged an all-timerecord low at 4.01%.
Please see important disclosure on next page.
10,78811,57810,77110,913Dow Jones 30
2.863.752.622.8410 Year Municipal
2.523.301.811.9310 Year Treasury
0.430.600.220.252 Year Treasury
0.250.250.250.25Fed Funds Target
-14.62-15.232.843.26MSCI - EAFE
1 week YTD
4.404.82N/AN/A30 Year Mortgage
0.380.410.480.506 Month CD
83.5481.1176.2677.08¥ per $
1.581.571.541.56$ per £
1.371.341.351.34$ per €
88.171.5616.2512.49Russell 1000 Growth
65.972.6212.599.78Russell 1000 Value
Wtd AvgMkt Cap(billions)DividendYieldP/ETrailingP/EForwardIndexCharacteristics
S&P 500 Sector Returns
S & P 5 0 0 M a t e r i a l s C o n s u m e r D i s c r . T e c h n o l o g y I n d u s t r i a l s C o n s u m e r S t a p l e s E n e r g y U t i l i t i e s H e a l t h C a r e F i n a n c i a l s T e l e c o m 1 . 8 1 . 1 0 . 7 0 . 7 0 . 5 0 . 5 - 0 . 3 - 2 . 3 - 2 . 4 - 3 . 1 - 0 . 4
S & P 5 0 0 F i n a n c i a l s M a t e r i a l s I n d u s t r i a l s E n e r g y T e c h n o l o g y C o n s u m e r D i s c r . T e l e c o m H e a l t h C a r e C o n s u m e r S t a p l e s U t i l i t i e s 1 0 . 8 3 . 4 2 . 5 - 1 . 5 - 5 . 7 - 5 . 8 - 1 1 . 4 - 1 4 . 7 - 2 1 . 8 - 2 5 . 2 - 8 . 7
1 w e e k Y T D
1 w e e k
Y T D
Note: All returns represent total return including dividends.
Chart of the Week
M2 Growth has Been Fueled by Money Market Redemptions
Year-over-year growth in M2
0%2%4%6%8%10%12%14%'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
The extra 1% increase was due tomoney marketoutflows