OJM Group Monthly Market Commentary, September 2011

The month of August was the most volatile in the markets since the spring of 2009.  In the aftermath of the contentious U.S. debt-ceiling debate in congress, sentiment has shifted to extreme pessimism among market participants and consumers.  The investment community quickly began to reassess the Gross Domestic Product (GDP) revisions that were provided earlier in July.  These numbers showed that the recession in 2008 & 2009 was deeper than originally thought and that growth has been slower than previously believed over the past several quarters.  With government spending certain to be lower in the future, it will be necessary for consumer or business spending, or net exports to improve to stave off another recession.  When coupled with the ongoing European debt issues, these concerns have caused investors to sell risk assets (i.e. stocks) and flock to traditional safe haven investments like U.S. Treasuries and gold. 

During the final two weeks of August, we did see some mitigation in the daily whip-saw of the equity markets.  U.S. equities appeared undervalued and bargain hunters along with less negative news supported equities as they clawed back some of the month’s early losses.  In the end, the S&P 500 ended the month down -5.43% and stood at a return of -1.77% for the year-to-date.  Emerging Markets as measured by the MSCI Emerging Markets Index were down -8.91% in August, leaving that index down -8.52% year-to-date.  Commodities and Bonds are two asset classes that still had a positive annual return after August with the Deutsche Bank Commodity Index at a 5.73% year-to-date return and the Barclays Intermediate Gov’t/Credit Bond Index returning 5.04% year-to-date.

Looking Forward

The U.S. and international equity markets are currently examining and dissecting each new piece of economic data with an extreme level of granularity.  Each new economic report or daily news topic is creating high volatility given the current skittish environment.  If a new recession ensues, stocks are likely to do poorly as demand for products and services decreases.  However, bond and money market yields are at extremely low levels and although they provide some security, they do not offer the potential returns needed for many investors to realize their investment goals. 

The likelihood of recession has been reported anywhere from zero to one hundred percent depending on the source.  At this time, a look at the data does not support an imminent recession.  The ISM Business Activity Index fell to 56.5 in August.  A reading above 50 indicates expansion.  Likewise, the ISM’s Manufacturing Index fell to 50.6, also indicating expansion, albeit at a very slow pace.  Industrial production, as measured by the Federal Reserve increased to 94.2 in July.  This was an increase over June.  These three indicators each reflected expansion in economic activity, although some at a slower pace than the prior month. 

The most critical component to any evaluation of current economic environment is employment.  The numbers recently reported have been poor by any measure.  The economy continues to fail to create enough jobs to lower unemployment.  Without increased employment there is simply not enough aggregate demand of goods and services to grow the economy at a healthy pace.  We will continue to monitor developments in the labor market for any hint of change.  This first full week of September will be marked by President Obama addressing the country regarding the administration’s jobs plan.  The stock and bond market’s reaction to this initiative will set the tone for the next several months. 

The current high level of uncertainty and volatility continues to reinforce the need for a well-diversified portfolio.  We are reminded daily of the importance of having an appropriate asset allocation to mitigate the daily market ups and downs.  Exposure to bonds, gold and other commodities, as well as, other alternative asset classes with low correlation to the equity market, continues to dampen the effect of equity market volatility while allowing portfolios to stay invested in stocks so that their growth benefits may ultimately be realized.
 

Market Statistics*

* With the exception of the Deutsche Bank Commodity Index, all returns include dividend reinvestments. Source: Bloomberg, LP.
** Year to date through 8/31/2011.

Contact Us

Do you have questions about your investments? Contact us at:

877-656-4362

Disclosure:
OJM Group is an SEC registered investment adviser with its principal place of business in the State of Ohio. This article is limited to the dissemination of general information pertaining to its investment advisory and management services. The information herein should not be considered personalized investment advice. There is no guarantee that the views and opinions expressed in this article will come to pass. For information pertaining to the registration status of OJM Group please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov ). For additional information, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.