Markets: A hot quarter in nearly everything

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The quarter ended Thursday was great for foreign stocks, very good for domestic stocks and commodities, and highly rewarding for most bond investors as well.

The rebound in stocks and commodities from the second-quarter’s deep losses reflected renewed faith that the economy wasn’t headed for the dreaded double-dip recession.

The SPDR Standard & Poor’s 500 Trust, a popular exchange-traded fund that tracks the blue-chip S&P 500 index, shot up 11.2% in the quarter.

Most broad U.S. stock market indexes were up between 10% and 15% in the period, the best performance since the third quarter of 2009.

The accompanying chart lists total returns (share price appreciation or depreciation plus any interest or dividend income) for the quarter and year-to-date for 17 ETFs and conventional mutual funds, chosen to show a broad cross-section of markets.

Foreign stocks, which led the market plunge in spring as Europe’s sovereign-debt crisis exploded, rebounded with Wall Street after Armageddon once again was postponed.

But the falling dollar was a big factor in the hefty third-quarter gains of many foreign stock funds: A weaker U.S. buck meant that stocks denominated in stronger foreign currencies translated into more dollars.

The German stock market, for example, was up a relatively modest 4.4% in euro terms in the quarter, but up 16.1% in dollars.

Brazil’s market jumped 13.9% in the country’s currency, the real, but soared 20.3% in dollars. That helped power the chart-leading return of the iShares MSCI Emerging Markets stock ETF.

The drop in the greenback -- it fell 8.5% in the quarter as measured by the DXY index, which tracks the dollar against six other major currencies -- also helped bolster commodities. The Reuters/Jefferies CRB index of 19 major commodities, including oil, wheat, nickel and coffee, rose 11% in the quarter to end at the highest level since Jan. 11.

A weak dollar, which serves the purposes of the Obama administration and the Federal Reserve, helps commodities in two ways: It makes hard assets more appealing as investments compared with a dwindling paper currency, and it makes raw materials cheaper for foreign buyers because most commodities are priced in dollars on world markets.

With the dollar sliding, doubts about the long-term appeal of U.S. financial assets also fed the decade-long bull markets in gold and silver. The SPDR Gold Trust ETF, which tracks bullion’s price, added 5.1% in the quarter to end at $127.91 a share, after hitting a record $127.95 on Wednesday. Gold itself finished September at $1,307.80 an ounce.

Silver got an even bigger boost after lagging gold in the first half of this year. The iShares Silver Trust soared 17% in the quarter as the metal’s price hit a 30-year high of $21.93 an ounce this week.

Bonds, meanwhile, benefited from a further drop in market interest rates. The 10-year Treasury note yield fell from 2.95% at the start of the quarter to end Thursday at 2.51%, near a 19-month low. Falling market yields boosts the value of older bonds issued at higher rates.

The Pimco Total Return bond fund, the world’s largest, generated a total return of 3.7% in the quarter. Just 0.7% of that was interest earnings; 3% was principal gain on the portfolio.

The slide in bond yields was driven in part by expectations that the Fed isn’t done easing credit. The central bank in mid-August pledged to resume buying Treasury bonds with proceeds from its maturing mortgage-bond portfolio. By September much of Wall Street was betting on the Fed launching a much bigger bond-buying program by year’s end to try to push long-term interest rates even lower, boost the economy and put an end to deflation talk.

That just adds to the list of market uncertainties as the fourth quarter begins. Will the Fed do more? Will Republicans sweep in the mid-term election? Will the Bush tax cuts be allowed to expire on Dec. 31? Can Europe stave off another debt crisis?

And most important: Have double-dip recession fears been banished once and for all, or is the U.S. economy just doing a good imitation of Wile E. Coyote -- off the cliff, but for the moment still suspended in mid-air?

-- Tom Petruno