Turn Out the Lights, the Party's Over

October 1, 2012

As summer has closed and we move into autumn, investors will focus on multiple issues. First, earnings season for the third quarter begins next week, and expectations have been dropping for several weeks.
-Regina Shafer, assistant vice president of fixed income investments, USAA Investments

The jubilation following recent monetary easing by the world's central bankers sputtered this week as investors grappled with relatively harsh news on the economic front.

The S&P 500 index, after hitting a five-year high Sept. 14, has suffered a mild sinking spell, falling 1.3 percent this week to close at 1,441. Government bonds rallied on slowdown concerns, with the yield on the 10-year Treasury falling 0.12 on the week to close at 1.63 percent. Gold, which has recently been reacting positively to the massive money-printing operations taking place throughout the world, closed nearly flat for the week at $1,772 an ounce, down 0.06 percent.

The U.S. manufacturing sector, an important segment of our economy, appears to be contracting. This was evidenced this week by the Chicago Fed National Activity Index, which posted a negative reading of -.87 for August, and the Dallas Fed Manufacturing Outlook of -0.9 for September. The Richmond and Kansas City Fed indexes, however, did report slightly positive readings of 4 and 2, respectively.

The ISM Milwaukee Purchasers Manufacturing Index and the ISM Chicago Business Survey both reported deteriorating business conditions, with readings of 47.2 and 49.7, respectively.

Durable-goods orders for August were an abysmal -13.2 percent, the worst reading since 2009, and down 1.6 percent excluding the volatile aircraft segment.

Personal income in August rose just 0.1 percent, slightly less than expected. Real per capita income and wealth remain lower than they were five years ago, showing the effects of the severe recession, and the weakness of the recovery.

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