3rd Quarter Index Performance Report

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average rose 237.58 points or approximately 1.8% to close at 13,437.13 It has been a busy 6 months since I last published the Sterling Weekly,  I am very happy to announce that during the last 6 months, my wife and I saw the birth of our 1st child, a very healthy baby boy that we are very excited to have in our lives.  Over the course of that period of time the market has moved slightly higher.  However the continued bond buying and quantitative easing policies of the Fed continues to cause me a great deal of concern;  specifically that the Fed is creating a financial bubble unlike the world has ever seen before.  I have concerns that when this bubble finally bursts there will be negative consequences that are devastating for the world economy.

We saw the end of the 3rd quarter last week.  As usual, I like to take a look at the performance of the various sector indices I track and see what the market is telling us.  I usually find these results somewhat interesting.  I have published the results below for your review as well.

In looking at the results from the 3rd quarter, several items stood out.  The 1st being that the average index was higher by 6.06% for the quarter.  The Dow Jones Industrial Average and the S&P 500 both underperformed the average index, with results of 4.32% and 5.76% returns respectively.  The NASDAQ 100 posted a gain of 7.01%, outperforming the average index.  The 2nd thing I noticed was the the 6 of the top 9 performing indices were commodities related indices.  They were the Philly Gold/Silver, Amex Gold Bugs, Amex Gold Miners,  Philly Oil Services, Amex Oil & Gas, and the Amex MS Commodities.  The KBW Banking Index ‘BKX’ also made the top 9 indices.  What I see all these indices having in common is that they are subject to manipulation higher by the Fed’s Quantitative Easing policies.  Additionally the 1st six I mentioned all seem to be somewhat an indicator of future inflation being a problem.

The 3rd thing I noticed was that 5 of the 6 worst performing sectors were either related to transportation, utilities, or the brokerage industries.   The utilities and brokerage industries are subject to expansive new regulations through either Dodd-Frank or the EPA; while I consider the Dow Transportation indices to be the canary in the coal mine for the US economy.  The poor performance of these indices indicates a slowing economy in my book.

I also wanted to take a look at the year to date results.  Which I have posted below for your review.

I do not see quite as a clear of a message in the year to date results.  The fact that the Amex Biotech Index ‘BTK’ is the top performing index is not surprising to me.  For quite some time now it has been one of the few industries where new technology was being developed; and I have long said that bull markets are the result of either government regulation or new technologies.  The heavy re-regulation of the American economy by the Obama administration is definitely weighing on parts of the market.  I have suspected that we saw increased capital spending earlier in the year as companies moved to take advantage of tax breaks and other incentives that will expire at the end of this year; and that is why the tech sector has been a more solid performer year to date.

Again, I continue to have concern about the poor performance year to date by the transportation sectors.  I do believe that there is merit to the Dow Theory, and I see a slowing economy that I think will catch people unprepared.

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