Performance Review by Major Asset Class - Sept. 2012

By James Picerno of The Capital Speculator

The capital and commodity markets in general enter the third quarter on a strong note. Nearly all of the major asset classes posted gains in September and everything is comfortably in the black for the year through the end of the third quarter. Looking backward suggests that all's well. But rearview mirrors can be misleading at times if momentum is set to give way to mean reversion. 

Such changes aren't easy to time, but you won't have to search long for potential catalysts in the months ahead. Between the fiscal cliff that threatens the U.S. economy, ongoing turmoil in Europe as it struggles on with managing the euro blowback, and any number of potential hotspots in the Middle East that could spin out of control in a heartbeat, there's no shortage of things to worry about. The major asset classes, however, seem to be climbing a wall of worry. Emerging market stocks were especially strong last month, rising 6.0%. REITs were September's big loser, but keep in mind that real estate securities are still enjoying a sizzling 14.9% rise so this year.

Given this lovefest with risky assets of late, it's no surprise that the Global Market Index (GMI) is higher by 9.4% year to date through September 30. If the trend over the past nine months rolled on through the end of the year, GMI would be on track for delivering one of its stronger sprints in terms of calendar-year performances.

But you don't have to be a pessimist to wonder if the fourth quarter will face a bit more challenges than we've seen so far this year. Or, to flip that around, you have to be a strong-willed optimist to think that the next three months will continue to deliver more of the same by the time the dust clears on December 31.

What we can say for sure is that if you've been riding the beta wave this year, cashing in at this point and sitting out the remainder of the year would still leave you with a handsome return for the full year. That's an extreme move, of course, and probably far too radical to be of any use in the context of prudent money management. Still, it's food for thought, as they say. When Mr. Market presents us with an attractive array of considerable gains, the least we can do consider the possibilities from multiple angles, if only in theory. 

About the Author - James Picerno is a veteran financial journalist since the early 1990s at Bloomberg, Dow Jones, etc. before becoming an independent writer/analyst/consultant in 2008.  James is also the author of Dynamic Asset Allocation (Bloomberg Financial, 2010) and he writes at The Capital Speculator. (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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