Q3 2012 Market Commentary
David Y. Sun, CFA®

After a dismal second quarter, we were treated to another positive quarter similar to the one earlier this year. The only difference being that corporate fundamentals are actually weaker this time around as earnings estimates continue to be adjusted downward. Despite continuing uncertainty worldwide, there appears to be more hope in regards to the future. As we monitor corporate fundamentals, we are looking for signs of stability in earnings projections. We are consistent with our post “Tech Wreck” approach where we need to be convinced before committing funds to more equities in appropriate situations. Due to this perspective, we typically do not try to identify the bottoms of market cycles but focus on the uptrend based on the formation of a bottom.

Additional positive announcements were made recently that have attributed to the recent run up in equity markets including China’s $157B commitment to infrastructure, ECB’s announcement to support bond prices and of course, QE3. We have thoroughly reviewed each announcement to understand how each can possibly impact economic growth. China’s commitment to infrastructure should help their economy grow at a quicker pace but we feel that it is only short-term in nature and not sustainable without additional fiscal spending or support from global economic growth. Regarding the ECB’s commitment to purchasing debt of distressed countries to provide lower rates, we feel this action only prevents the financial situation in Europe from getting worst and will have no impact on economic growth. Finally, in regards to QE3, we feel that any impact on the economy will be minimal.

As we review numerous factors that constantly change in the global economic picture, we strongly believe that one major variable necessary for sustainable economic growth is job creation in the United States. We are looking for resolution in the political landscape as a possible catalyst for resolving some of the uncertainties that are preventing companies from committing funds to job creation. We fully appreciate that we are in a “chicken or the egg” situation but the initial “leap of faith” must come from corporations due to their financial strength and not the government. The recent announcement of the unemployment rate dropping to 7.8% is a good start. Sustainable economic growth must depend on both the individual consumer (jobs) and corporations (capital expenditures).

We are hopeful but remain cautious as equity markets test recent highs. Many of our clients are extremely comfortable with our balanced approach due to the same concerns but if you feel that you should be more aggressive, please contact your consultant.  Again, it is extremely important to review your situation due to the dynamic nature of capital markets.

At this time I would like to officially welcome Leslie Tritschler who recently joined us as Director of Operations & Client Services.  Her responsibilities include the oversight of establishing new accounts, transfers and resolving client service issues. She can be reached at our Berwyn office should you need any assistance. Another individual I would like to welcome is Robin Sun who recently joined us as a Financial Planning and Portfolio Consultant. He will be operating out of the Los Angeles area and will be responsible for establishing our presence on the west coast. If you haven’t already done so, please visit our website, www.ellisinvestmentpartners.com.

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