A third-quarter market summary:
Low trading volume and major headlines regarding Syria dominated the third quarter of 2013. This quarter also marked the five-year anniversary of the Lehman bankruptcy and the beginning of the financial crisis.
Maybe this awful reminder spooked investors, because you have to go all the way back to 2007 to find such investor apathy. Regardless of the reasons, it didn’t seem to matter: The S&P 500 was up 5.24 percent this quarter including dividends, which was surprising because September is usually the worst month of the year for the market.
An improving economy in the U.S. and China drove the stock market higher. Bonds fared worse – the Barclay’s Aggregate Bond Index was up 0.57 percent. At the same time that investors were moving money to the sidelines, U.S. Gross Domestic Product was revised up to 2.5 percent for the second quarter.
In August, dealers saw a record amount of automobile sales, an important component of GDP. Additionally, the Institute for Supply Management Services Index – which indicates expansion in the manufacturing sector – rose to its highest level since
2005. Even the Federal Reserve’s Beige Book showed good improvement in retail sales, and loan quality at banks improved across the country.
Larry Summers’ recent announcement that he was withdrawing his name for consideration to serve as the next Federal Reserve Chairman was another plus for both the stock and bond markets.
The new frontrunner, Vice Chair Janet Yellen, is considered more dovish and more likely to keep her predecessor’s accommodative policies. Summers was a wild card with regards to changing the interest rate policy of current Chair Ben Bernanke and was extremely controversial. At least now we know that the Federal Reserve will likely not begin tapering until the economy gets stronger.
However, we still have to wait to see if Congress can approve a new budget and increase the debt ceiling above the current $16.7 trillion level, in order to pay our government’s obligations. As we head into the remaining three months of the year, we are pleased to see companies in the S&P 500 continue to raise dividends at a healthy pace, which we think is very positive for our dividend growth focus.