Quarterly Recap - 2010 Third Quarter

The global equity market recovery that began back in March 2009 continued to march forward in the third quarter of 2010, following a brief but sharp retreat in the second quarter due to heightened fears surrounding the European debt crisis. As the European debt fears eased in the third quarter, equity markets responded in kind. The S&P 500 Index finished the quarter with a strong return of +11.3%, but not without yet another “choppy” quarter characterized by heightened levels of volatility. The S&P 500 started the quarter strong by posting a gain of +7.0% in July, but promptly gave most of the July return back in August as fears of a double dip recession surfaced following a series of negative economic news releases. However, fears of a double dip recession quickly eased in the month of September, and on top of waning European debt concerns in addition to merger & acquisition (M&A) activity picking up to a level not seen in over two years, the S&P 500 responded with a September return of +8.9%. And with September’s strong rebound, the S&P 500 Index is now back in positive territory for the year, up +3.9%.

Developed equity markets outside the U.S. posted even stronger returns during the third quarter as the MSCI EAFE Index returned +15.8%, but even with the very strong third quarter return the index is still slightly negative for the year, down -1.3%. Topping global developed market returns for the third quarter were the returns of emerging markets, as the MSCI Emerging Markets Index posted a very strong return of +17.2%. Emerging markets are now up +8.7% for the year. Both developed non-U.S. and emerging market equity markets benefitted from price appreciation and a falling U.S. dollar during the third quarter.

Fixed income markets again posted positive returns during the third quarter as interest rates continued to fall (all else being equal, as interest rates fall, bond prices rise and vice versa). The Barclays U.S. Aggregate Bond Index returned +2.5% for the third quarter and is up a solid +7.9% for the year. High yield bonds (junk bonds) - also aided by easing fears of a double dip recession - posted a strong +6.7% quarterly return as measured by the Barclays U.S. Corp High Yield Index.

1. Morningstar Direct

If you have any questions, please contact Scott Rivera, Cetera Financial Group, at (310) 257-7689.

TThe views are those of Richard Anderson, Equity Research Director and Alex Kaye, CFA, Head of Research, Research Department, Cetera Financial Group, 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.