The financial services sector led the charge in equity markets for the trailing three month period ending Oct. 31, up roughly 8.5% versus the S&P 500 which was up roughly 5.5% during the same period.  Financials cooled significantly in October while energy prices jumped. 

Fixed income rose across the board for the quarter ending Sept. 30 as liquidity and the economic outlook continued to improve.  Corporate and Government bonds held those gains through October while the municipal bond market gave back some ground during the month.  High Yield bonds have been leaders in the credit market so far this year as these holdings are recovering from significant drops in the 4th quarter of 2008 through January and February. 

The Federal Reserve was relatively quiet through most of October, although the September notes were released, which indicated that the Board intends to keep interest rates low for the time being.  Inflationary pressures remain mild for the moment; although this is a point of contention for some members who believe long term inflation is a greater concern.  With unemployment numbers continuing to disappoint, it appears the Fed will continue to hold rates low until the job creation picture is more favorable. 

The unemployment rate in the month of October jumped 0.4% to 10.2%.  This was higher than analysts’ expectations of 9.9 to 10% and is the highest unemployment rate since April of 1983.  During the month the number of unemployed persons increased by 558,000 to 15.7 million.  Since the beginning of the recession in December of 2007, the number of unemployed has increased by 8.2 million and the rate has increased 5.3%.  Most of the October losses were in construction, manufacturing, and retail trade.  On a (slightly) positive note, weekly jobless claims continued to decrease for the week ending Oct. 31 to 512,000, a decrease of 20,000 from the prior week.  This tells us that while job losses continue to increase, they are doing so at a decreasing rate.  Weekly jobless claims in the low 400,000 range would signal a significant improvement in our opinion. 

The housing market provided both some positive and negative results for the month of October.  Existing home sales jumped while new home sales slid.  This is a likely sign that many buyers remain cautious.  Additionally, many attributed the jump in existing homes to buyers rushing to beat the tax credit deadline of Nov. 30.  However, President Obama recently signed legislation that extends the credit to purchases under contract by 4/30/10 and closed by 6/30/10.  While the housing market continues to stabilize, the credit extension is a sign that policy makers are still hesitant to take away this safety net. 

In summary, we continue to believe that the worst of the recession is behind us as the markets and economy have shown continued stabilization.  We do believe that the extended recovery will be choppy and uneven as consumer constraints stretch the limits of government stimulus and previous cycle lows.  Strategically this has resulted in a reduction in high yield bonds and an increased allocation to foreign equities and inflation hedges. 

On the Sequoia front, we want to share some changes to the structure of our Mortgage Operations.  Through the past year and a half, the mortgage markets have been particularly difficult, and additional pressures to underwriting and appraisal values have constricted financing options.  Ken Smith, the director of Sequoia Financial Mortgage Company, has been an advocate to our clients in navigating these difficult markets.  As part of these efforts, Ken and Sequoia developed a relationship with Eagle Nationwide Mortgage Company, which is a full service bank licensed in all 50 states.  Sequoia and Eagle have been working together to service the Florida mortgage market and have decided to expand this relationship in Ohio as well.  As of November 2nd we have merged Sequoia Financial Mortgage Company into Eagle Nationwide Mortgage.  Ken Smith will continue to serve clients of Sequoia Financial Group and will now have the ability to facilitate loans in all 50 states as well as expanded loan programs such as FHA.  We believe this transition will allow us to provide a higher level of service to our clients in navigating the continuously difficult mortgage markets.

In closing, we would like to thank you again for your loyalty and trust you have placed in us.  Please do not hesitate to contact any Sequoia team member if you would like to discuss any of these issues further. All of us wish you a safe and prosperous holiday season.

Sincerely,

Sequoia Financial Advisors

Thomas A. Haught CFP® ChFC
President

Sources:
www.bls.gov
www.bea.gov
www.algonquinadvisors.com: Algonquin Q3 Global Macro Report
www.fortigent.com: Fortigent 10/31/09 Flash Report

Sequoia Financial Advisors, LLC does not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters.