Quarterly Recap - 2009 Third Quarter

Major market indexes showed no signs of reversing course in the third quarter. Some market strategists had predicted a correction in equity markets given the strong run since mid-March, but investors continued to buy stocks in anticipation of an economic recovery. While the Fed did not make any changes to its accommodative interest rate policies in its August meeting, it did note that economic conditions were improving. Equity indexes are now solidly in positive territory for the year with gains showing across most sectors and countries. Similar to the second quarter, some strategists continue to argue that stocks are due for a correction. Others, however, still see room for additional upside, partly due to government attempts to keep interest rates low. Despite the amount of liquidity that is being pumped into the economy, signs of inflation have yet to emerge. Continuing the trend from the prior quarter, small cap stocks generally outperformed large caps in the third quarter. In addition, growth stocks tended to outperform value stocks as investors continued to put more money into companies with better growth prospects. In a slight change from earlier in the year, international developed markets outperformed both U.S and emerging markets. Given the large gains seen in many emerging market countries in the first half of the year, it is not surprising to see a slight slowdown in the upward momentum. Nevertheless, emerging markets indexes still managed to post solid gains in the quarter. Attention is now likely to shift to the upcoming earnings season and the overall outlook for 2010.

Much like the equity markets, most areas of the bond markets continued the rally that began in the first quarter of 2009. Investors sought out higher yields in the corporate bond space. Both investment grade and high yield bonds turned in positive performances. Muni bonds and bank loans also posted gains. Several categories of Treasury debt did manage to post gains for the quarter, but the Treasury segment as a whole remains the worst performing fixed income sector year to date. As investors seek out higher yields and become more comfortable taking on riskier assets, they often sell the safest bonds such as Treasuries.

1. Wall Street Journal 10/01/09

The views are those of Cameron Lavey, Senior Investment Analyst, Research Department/ING Advisors Network, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.

Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. Please consult your financial advisor for more information.

Small cap stocks may be subject to a higher degree of market risk than large cap stocks, or more established companies’ securities. Furthermore, the illiquidity of the small cap market may adversely affect the value of an investment, so that shares, when redeemed, may be worth more or less than their original cost.