Market Recap for November 2010

(For the month ended November 30, 2010.)

Stocks surged then slumped in November, as initial enthusiasm about strong corporate earnings and new Federal Reserve stimulus gave way to anxiety over events in Europe and Asia. During the market's first losing month since August, all three major U.S. equity indices gave up ground in the wake of renewed military tensions on the Korean peninsula, worries over European sovereign debt contagion and concerns that Chinese anti-inflation policies will have worse-than-anticipated results on economic growth. After rising 12.8% in September and October, the S&P 500 lost 0.2% in November. The Dow Jones Industrial Average was down 1.0%, and the Nasdaq fell 0.4%. Treasury yields generally moved lower early in the month, but higher by the end.

Source: Standard & Poor's. The S&P 500, Dow Jones Industrials and Nasdaq Composite are unmanaged indices. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

*Price only. Does not include dividends.

China Price Chinese inflation hit 4.4%, above market expectations of 4%, driven largely by a 10.1% food price spike. This sparked fears of continued Chinese monetary policy tightening and ongoing increases in Chinese bank reserve requirements, which are up 2% since January at 17.5%. With China by far the biggest contributor to global growth, investors the world over fretted in November that a hard landing may be looming. As such, risk assets like global equities and commodities succumbed to profit taking.

Global Reverberations Ireland's fiscal woes rekindled peripheral European sovereign debt jitters. That weighed on the euro and boosted the greenback, thereby adding to the pressure on risk assets that have been negatively correlated to the dollar for most of the past few years. Military tensions on the Korean Peninsula also roiled stock markets around the world.

Easing Efforts The Federal Reserve announced another round of quantitative easing, stating the intent (though not firm promise) to buy another $600 billion in long-term Treasury securities through the second quarter of 2011. The move is intended to bring down long-term interest rates even further and boost lending to the household and business sectors. However, with rates already hovering near record lows, and inflation-protected bonds recently auctioned at a negative interest rate, any impact is likely to be modest.

Politics and Policy Although markets responded favorably in the immediate aftermath of the Republican election day routing, the rally proved short lived as many saw the shift in Congressional leadership as unlikely to bring any sudden change in policies. One major initiative, however, seemed likely: an extension of the Bush tax cuts, which would keep the capital gains and dividend tax rates capped at 15%.

Treasury Notes Falling Treasury prices pushed up yields in November, despite the Fed's announcement of a new round of Treasury purchases. The 10-year Treasury yield was 2.80% at the end of the month, versus 2.63% after October. Yields on 30-year issues rose to 4.11%, from 3.99%.