Weekly Market Update: Insights from TIAA-CREF Experts

Weak Growth and Public Policy Concerns Drive Market Volatility

Ed Grzybowski, Chief Investment Officer

Labor Day week offered little respite from the prevailing market volatility of the past few months. After the S&P 500 Index tumbled more than 4% in the first three trading days of the month—its worst September start in history—the Index rebounded nearly 3% the following day. Short-term market performance continues to be driven primarily by worry that Europe’s sovereign debt problems may escalate into a full-blown European banking crisis, and by uncertainty as to whether public policy responses to economic challenges will be enough to stave off a double-dip recession in the U.S.

With so much pessimism built into the markets, particularly on the heels of disappointing employment numbers, even modestly good news has been enough to fuel outsized rallies. While far from robust, U.S. economic activity has shown some pockets of improvement. In recent weeks, we have seen favorable data on consumer spending, industrial production and durable goods orders. In addition, the service sector, as measured by the Institute for Supply Management non-manufacturing index, performed better than expected, rising to 53.3 in August (any reading above 50 is an indicator of a growing economy). The manufacturing sector, measured by the Purchasing Managers Index dipped slightly in August, to 50.6—a level that nonetheless indicates economic expansion.

The government’s second-quarter reading on GDP growth remained marginally positive at 1%, well below the nation’s long-term potential growth rate. While this leaves the economy more vulnerable to external shocks, we believe the likelihood of a recession is still low. Moreover, we have not experienced the sharp contractions in credit and capital spending that have often triggered past recessions.

Investors will continue to focus on U.S. growth prospects and look for signs of progress in addressing Europe’s debt issues. In our view, long-term resolution of these problems will require European authorities to increase funding to support the banking sector by buying sovereign debts. In the U.S., it remains to be seen whether the government’s attempts at stimulus will be enough to jumpstart the economy. Given the ongoing uncertainty, we expect equity and fixed-income volatility to continue.

TIAA-CREF’s Readiness
TIAA-CREF stands ready to help you plan for your individual financial needs. TIAA-CREF offers mutual funds as well as variable and fixed annuities, providing investors with the ability to invest based on their personal risk tolerance and goals. Our guaranteed annuity products are backed by the financial strength and stability of the TIAA General Account, which maintains substantial capital reserves to ensure that we continue our 93-year history of meeting our obligations and operating needs. Our Consultants and Advisors are equipped to give you advice that is appropriately suited to your specific situation.

The information provided herein is as of September 9, 2011.

The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.

TIAA is one of only three insurance groups in the United States to hold the highest ratings currently awarded from all four leading independent insurance industry ratings agencies. For its stability, claims-paying ability and overall financial strength, TIAA currently holds the following ratings: A.M. Best (A++ as of 2/11), Fitch (AAA as of 6/11), Moody's Investors Service (Aaa as of 6/11) and Standard & Poor's (AA+ as of 8/11). Per S&P criteria, the downgrade of US long-term government debt limits the highest rating of U.S. insurers to AA+ (the second highest rating available).There is no guarantee that current ratings will be maintained. Ratings represent a company’s ability to meet policyholders’ obligations and claims and do not apply to variable annuities, mutual funds or any other product or service not fully backed by TIAA's claims-paying ability.

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