Quarterly Market Capital Digest July09
- 1. Ameriprise Advisor Services, Inc. Investment Research Group SECOND QUARTER - 2009 Quarterly Capital Market Digest July 2009 SENIOR MARKET STRATEGIST Marc A. Zabicki, CFA PLEASE NOTE: FOR IMPORTANT DISCLOSURES, INCLUDING POTENTIAL CONFLICTS OF INTEREST, PLEASE SEE THE LAST PAGE OF THIS PUBLICATION
- 2. Quarterly Capital Market Digest - SECOND QUARTER - 2009 Page 2 of 4 Back On Track? Global markets moved from bouts of depression in the first quarter toward increased appetites for risk in April, May, and June. Risk-based assets in equity, bond, and commodity markets improved across the board through most of the second quarter, but waned a bit in June as global economic indications showed still-weak real demand. The S&P 500 rose 15.2% for the period, while the MSCI EAFE and the MSCI Emerging Markets Index gained 23.8% and 33.6%, respectively. The riskier assets outperformed as investors searched for beta in a rising market, while safe-haven Treasuries and other high-grade sovereign credits suffered. Oil and other key commodities were significantly higher, due to renewed expectations of a rebound in economic growth, and market participants also leveraged risk via a healthy take-up of emerging market equities. The return to more reasonable expectations in the market was also highlighted, most pointedly, in the cyclical equity sectors such as U.S. Financials, Technology and Consumer Discretionary issues. This U.S. sector development was similarly replayed in other global regions during the quarter. While the capital markets returned from the abyss late Q1 and Q2, investors paused a bit in June as concern developed over the pace of global economies and whether asset prices had come too far too fast. June major market returns contrasted a bit with the quarter's performance as the S&P 500 finished flat for the month while the MSCI EAFE and the MSCI Emerging Market Indices closed with slight losses. In the U.S., further investor realization that doomsday was not upon us sparked much of the second quarter's equity gains. In our view, the advance was overdue and justified as a a return to more rational expectations was expected. Activity slowed in June, again as -expected, once investors picked the low hanging fruit and recalibrated their expectations for the likely slow, fundamental pace of the economic recovery. Economic data in the U.S. did improve during the second quarter, although the numbers in aggregate did not signal a robust rebound in economic activity. U.S. capital markets reacted to indications that were "less bad", but a definitive improvement in the economic environment has yet to be seen. The U.S. jobs market has shown some signs of stabilization and Initial Jobless Claims may have seen their peak in this cycle. However, unemployment figures have pushed higher (9.5%), which has caused some investor concern that consumer spending could remain lackluster and savings rates could be sticky at near 7% of disposable income. This level of consumer saving, while needed to replenish balance sheets, has not been seen since the early 1990s. During the quarter, consumer and business spending patterns continued to be influenced by a reduction in credit availability and a credit market that is improved but is not fully functional. This shift in spending habits and credit has caused investors to refocus expectations toward a more modest economic and equity market recovery scenario. Internationally, the major market story continues to be the equity returns in emerging markets. The take-up of risk during the quarter, prompted significant equity gains in emerging market stocks, particularly those of the Asia-Pacific and BRIC countries. The investors thesis behind the gains was that these markets could be somewhat removed from the bank and economic problems of the more developed economies. China's working stimulus package ($586 billion) has been a source of positive sentiment for investors as market participants focused on a recovery in China's economy. In fact, 2009 and 2010 GDP growth forecasts for the nation have been revised upward, based on the likely benefits of the stimulus package. Gains of 24.7% in the Shanghai Composite during the quarter, and the faster growth expectations helped prompt the take-up of other Asia-Pacific stocks, as investors sought exposure to the regional economic power of China. Meanwhile, India reported the largest equity market advance, during the quarter, as investors cheered what was seen as pro-business political election results in the country. The Asia-Pacific region clearly led the globe in the equity advance during the period, with Latin American markets also performing well. Developed European markets posted positive results, but in aggregate, the returns were less robust than those found in the U.S. Commodity prices and a weaker U.S. dollar were also key stories during the period. Higher commodity prices and strength in other global currencies (see page 3 for detail) were largely a result of improved economic and market sentiment. Investors postulated that demand for commodities and currencies would increase as risk-aversion subsided. China's stockpiling of raw materials (in part to prepare for its infrastructure building plans) caused a rebound in many commodity prices, while speculation of future demand helped oil traders book profits in the period. The U.S. dollar was pressured (the U.S. Dollar Index fell 6.3% during the quarter) by investors swapping out of the "safe-haven" currency, worries over the expansive U.S. budget deficit, and speculation of reduced foreign demand for U.S. Treasury securities. To account for a now more-constructive equity environment and a likely rebound in economic activity, we have recently increased our suggested exposure to U.S. cyclical sectors at the expense of defensive groups. Specifically, we have raised our view on the Industrials and Energy groups, while becoming more cautious on Consumer Staples, Consumer Discretionary, and Utilities. More broadly, we believe global markets are back on a slow track and biased to rise further this year. However, volatility will likely remain pronounced and the best equity gains since the March lows have already been booked. We believe, investors should prepare for modest returns for the balance of 2009. In this environment we maintain a positive outlook on the U.S. and Asia-Pacific regions, and we have constructive views on Latin America, the Eurozone, and the U.K. See our most recent Global Allocator and Market Strategy Viewpoint, or consult with your financial advisor for more detail. Senior Market Strategist Marc A. Zabicki, CFA
- 3. Quarterly Capital Market Digest - SECOND QUARTER - 2009 Page 3 of 4 Second Quarter Commodity Table Q-end Price Q1 % chg 49.3% Crude Oil 49.66 40.7% Second Quarter: Select Equity Index Price Returns Natural Gas 3.68 1.1% Gold 916.50 2.0% 37.2% 35.4% Aluminum 64.75 16.2% 33.6% 33.1% Copper 188.90 20.8% 26.9% 22.8% 24.7% Corn 385.00 -12.2% 23.8% Wheat 466.00 -7.5% 17.7% 15.2% 16.2% 11.9% Second Quarter Currency Table 8.2% Q1 % chg Australian Dollar vs. USD 16.7% New Zealand Dollar vs. USD 15.4% DAX Index CAC 40 Bombay MSCI EAFE Brazil Bovespa Singapore STI Hang Seng Korea Kospi S&P 500 Russia TI FTSE 100 Nikkei 225 Composite MSCI Em Mkts Sensex Shanghai British Pound vs. USD 14.9% Canadian Dollar vs. USD 8.4% Swedish Krona vs. USD 7.1% Danish Krone vs. USD 5.9% Euro vs. USD 5.9% Swiss Franc vs. USD 4.9% Norwegian Krone vs. USD 4.8% Second Quarter: U.S. Equity Sector Price Returns Japanese Yen vs. USD 2.7% 35.1% Treasury Yield Curve 17.6% 15.5% 18.0% 19.4% 8.9% 10.1% 8.3% 8.8% 1.9% Energy Consumer Consumer Info Tech Financials Health Care Telecom Utilities Industrials Materials Stpls. Disc. Second Quarter Yield/Spread Table Corp. Bond Basis Pt. Spread vs. 10yr T Fed funds 3M T-bill 2yr T 5yr T 10yr T 30yr T 10yr TIPS 30yr TIPS Prime Rate 3M LIBOR 30yrFixMtg "AA" "BBB" "B" Q1 End 0.31% 0.21% 0.80% 1.66% 2.67% 3.53% 1.35 1.81 3.25% 1.19% 4.20 314 591 1172 Q2 End 0.10% 0.19% 1.11% 2.56% 3.54% 4.34% 1.76 1.99 3.25% 0.60% 4.93 184 401 853 Chart and Data Sources: Bloomberg, Thomson Financial
- 4. Quarterly Capital Market Digest - SECOND QUARTER - 2009 Page 4 of 4 The views expressed regarding the company(ies) and sector(s) featured in this publication reflect the personal views of the Ameriprise Advisor Services, Inc. analyst(s) authoring the publication. Further, Ameriprise Advisor Services, Inc. analyst compensation is neither directly nor indirectly related to the specific recommendations or views contained in this publication. Please review available third party research reports for details on securities mentioned in this analysis. Except for the historical information contained herein, certain matters in this report are forward-looking statements or projections that are dependent upon certain risks and uncertainties, including but not limited to, such factors and considerations as general market volatility, global economic and geopolitical impacts, fiscal and monetary policy, liquidity, the level of interest rates, and historical sector performance relationships as they relate to the business and economic cycle. This Summary is based upon financial information and statistical data obtained from sources deemed reliable, but in no way is warranted by Ameriprise Advisor Services, Inc. as to accuracy or completeness. This is not a solicitation by Ameriprise Advisor Services, Inc. of any order to buy or sell securities. This Summary is based exclusively on an analysis of general current market conditions, rather than the suitability of a specific proposed securities transaction. Past performance is no guarantee of future performance. Ameriprise Advisor Services, Inc. may make a market in, provide research for and/or execute transactions as principal for certain securities mentioned in this Summary. For those securities in which Ameriprise Advisor Services, Inc. acts as principal, the firm may derive revenue from the spread, the difference between the bid and offer prices. For SmartTrade accounts, Financial Advisors may receive additional compensation on customer transactions in securities recommended by Ameriprise Advisor Services, Inc. or for which Ameriprise Advisor Services, Inc. provides research. We, our affiliates and any officer, director, employee, stockholder or any member of their families, may have a position in, and may from time to time, purchase or sell any of the aforementioned securities. H&R Block Financial Advisors, Inc. has become Ameriprise Advisor Services, Inc. an Ameriprise Financial company and is no longer affiliated with H&R Block, Inc. or any of its affiliates. Investments and financial advisory services and securities products offered through Ameriprise Advisor Services, Inc., Member NYSE/FINRA/SIPC, a subsidiary of Ameriprise Financial, Inc. Ameriprise Financial is the umbrella marketing name used by two separate and distinct registered broker-dealers of Ameriprise Financial, Inc.: Ameriprise Advisor Services, Inc. and Ameriprise Financial Services, Inc. 07/07/2009 Ameriprise Advisor Services Inc. The Dime Building 719 Griswold Street, Suite 1700 Detroit, MI 48226 Tel. 313.628.1200 For further information or to locate your nearest branch office, visit Ameriprise.com