October Market Summary from the FineMark Investment Team

October brought a change of season as well as an improvement in investor
sentiment. Following a torrid third quarter performance from global
equity markets, investors were in a bargain-buying mood last month,
which pulled the markets back in whipsaw-like fashion and pushed bond
yields up. The S&P 500 posted its best month since 1987 and the Dow
Jones Industrial Average swung back into positive territory for the
year. Despite the snapback from the markets, the FineMark investment
team still sees several potential issues that could significantly impact
client portfolios into year-end.

October Market Summary Final.pdf(67.4 KB)

The US released a better-than-expected GDP report for the third
quarter, likely averting a double-dip recession. However, household debt
and heightened unemployment will be a continued headwind to economic
prosperity. Despite the fragile US economy, corporate profits have been
very healthy. Third quarter earnings season can be summarized as
showcasing modest profit margins and cautious forward guidance. While
earnings growth rates will likely slow, we continue to hold a positive
view of domestic equities relative to bonds in light of low interest
rates and forecasts for global economic growth.

Globally, economic
weakness has been most evident in the euro-zone. Despite the latest
efforts by euro-zone policymakers to draw a line under the region’s
fiscal crisis – which include a “voluntary” 50% haircut for public
sector holders of Greek government bonds, recapitalizing banks and
leveraging the European Financial Stability Facility (rescue fund),
these efforts could prove to be too little too late and prolong the
recession within the continent. We continue to watch this development
closely. On the other hand, China appears to be navigating a “soft
landing” while its economy stabilizes and inflation begins to recede.

world economies are expected to grow, albeit more slowly in 2012 than
in 2011. While the European debt deal is a major step forward, the devil
is in the still unknown details. China and Brazil continue to
successfully combat inflation and cool their economies. Fiscal
challenges in the US will come back into focus as well. The
Congressional super committee has until November 23rd to reach an accord
on cutting at least $1.2 trillion in expenses. The credit rating
agencies will be watching this progression closely as a stalemate could
be a catalyst for another US debt rating change. As these details unfold
in the weeks ahead, continued market volatility should be expected.