Fundamentals falter ... But fears fade Featured

1:34pm EDT October 23, 2012
Fundamentals falter ... But fears fade

Every quarter, FirstMerit sends a newsletter to all its wealth management clients. In the Fall 2012 edition, Bob Leggett, CFA, Senior Investment Strategist, FirstMerit Wealth Management Services, discusses the year-long battle between fears and fundamentals.

Here's an excerpt from the newsletter:

For the past year, we have been harping on the need to downplay fears and focus on fundamentals. Our point was that fundamentals were at least okay and might actually surprise the consensus to the upside. The fears were not unreasonable, but appeared to us to have low probabilities of occurring within our tactical time horizon. Thus, a total focus on the downside risks of fearsome outcomes (such as a U.S. recession, the Fiscal Cliff, the European crisis, or a China hard landing) could — and did — cause many investors to miss the opportunity to participate in a bull market.

Market returns were very good through Q3 and the S&P 500 led the way with a 16.4 percent total return. Midsized and smaller stocks were up about 14 percent and despite U.S. Dollar strength and European leadership's determination to shoot themselves in the foot, EAFE was +10 percent and Emerging Markets +12 percent. Fixed Income returns weren't bad either (although Treasury returns were only low single-digits), as "spread product" such as Corporates (+7.1 percent) and High Yield (+12.1 percent) continued to do well. Somewhat ominously, TIPS did much better than non-inflation protected Treasuries.

Read the entire newsletter here: 10629_Fall2012_MM_r4

Bob Leggett, CFA, is the Senior Investment Strategist at FirstMerit Wealth Management Services. Reach him at robert.leggett@firstmerit.com or follow him on Twitter @firstmerit_mkt.