Concerned about economic growth, global central banks acted to stimulate borrowing. China’s central bank cut lending rates. The European central bank cut its benchmark interest rate. The Bank of England announced it would expand its holding of government bonds. The Federal Reserve announced 2 weeks ago that it would extend its own bond buying program until the end of the year.
Commodity prices increased for the month. Natural gas prices jumped 14.6%. Agriculture increased 21.5%. Gold closed at USD $1,617.60. Oil closed up at $87.79. U.S. gasoline prices increased to $3.49. Scorching heat in the U.S. coupled with the worst drought in nearly half a century threaten to drive up food prices, worrying consumers about rising food costs.
It was a difficult month for large-cap stocks. Early-and-mid-month concerns over European debt and recession pushed stocks down. The S&P 500 index fluctuated, but posted few extremes and had no drastic intraday swings. However, the broad market index rallied to return 1.39% as prospects for central bank action increased at month-end. In other segments, small cap stocks (Russell 2000 Index) fell 1.38%, and real estate securities edged 1.90% higher. Around the world, broad international developed markets (MSCI EAFE Index) returned 1.13%, Emerging markets (MSCI EM Index) returned 1.95% and the MSCI World ex-U.S. Small Cap Index gained 0.77%.
In foreign news, the future of Syria continues to play out on the battlefield. Frustrated by the seemingly intractable conflict, Kofi Annan announced his resignation. This ads doubt as to whether or not a diplomatic solution is possible. There is growing fear that Syria might become a staging area for militant extremists such as Al-Qaeda. This may further destabilize the Middle East. There is concern of ethnic cleansing and ongoing movement of refugees into neighboring countries. These events clearly tax the region and the world economically. Let’s hope that some diplomacy can devise a post Assad power sharing arrangement that all sides can agree on.
The relevance of passive and index investing is never more significant then when the world is in economic/political turmoil. Stay the course and remain disciplined, unless your personal situation has changed. If so, make sure to contact me so we can discuss and re-structure your portfolio.