The week was overshadowed by policy actions from the Federal Reserve, which led to a 2.2% gain in the Dow Jones Industrial Average and a 1.9% increase in the S&P 500 Index.

Widely reported last week was anemic labor market growth in August. Some talking heads took this news in stride, assuming this would guarantee further market intervention by the Fed, but there is a danger in assuming any form of quantitative easing will alleviate the intermediate-term concerns of the market.

In a week of relatively light trading to wrap up the summer, equity markets trickled lower, as the Dow Jones Industrial Average lost 0.5% and the S&P 500 Index fell 0.3%. It was a mixed week of economic data in the U.S., but markets were clearly locked in on Ben Bernanke's speech in Jackson Hole, Wyoming. News on housing seems to confirm that a bottom is in place, while manufacturing data continues to move in all different directions.

A relatively quiet, end-of-summer week resulted in modest losses for equity markets. The Dow Jones Industrial Average closed down 0.9% and the S&P 500 index lost 0.5%. There were limited amounts of economic data for the market to digest last week, but plenty of other headlines kept participants active. It was a decent week overall for economic data, as reflected by the continued recovery in the Citigroup Economic Surprise Index.

As the economy continues to grind along at a sub-optimal rate of growth, many pundits are calling for additional quantitative easing measures from the Federal Reserve. Recent inflation data keeps the door open for further easing, but pockets of higher prices exist, keeping the Fed at bay.

As we head further into the second half of 2012, it is clear that policy from central banks in the US, Europe, and China will drive markets and the global economy. Monetary policy in the US is becoming less impactful, while central bankers in Europe appear unwilling to tackle the enormity of their collective problem. It could be China that provides a sparkplug for second half global growth...

With the first half of the year in the rearview mirror, investors might be lulled into thinking the most active period of the year is also in the rearview. Fast forward to year-end, though, and investors may beg for a return to the sanguine days of early 2012. A range of events in the coming months will likely dictate market optimism for 2012, 2013 and possibly beyond.

At this juncture, positive catalysts seem few and far between. According to FactSet, 18 of 22 companies have already guided lower for the third quarter. Analysts are also ratcheting down forecasts quickly, with flat earnings growth expected in Q3. While growth is expected to pick back up in the fourth quarter, analysts have not cut those estimates aggressively yet. If the economic picture does not improve in the next few months, expect a pattern of downgrades to follow suit.

A paradigm shift away from active management has been in place for more than a decade. Active mutual funds held more than 19 times the amount of assets than passive strategies before the SPDR SPY ETF was launched in 1993. As seen below, they have gradually lost market share to passive vehicles, particularly in US Equities.

Equity markets started the third quarter in negative fashion, with a poor government jobs report sparking the decline. Following an astoundingly poor May jobs report, market participants were hopeful that June would bring about at least a normalization of labor data. Thursdays ADP employment report increased optimism that May was an anomalous reading.

In the past two weeks, several important indicators have illustrated a market that, while not quite in a state of recovery, appears to be stabilizing. This sentiment was echoed in the latest Beige Book released by the Federal Reserve, which reported, several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.

Institutional and individual investors are at an uncertain juncture, waiting to see what the next shoe to drop is. With an important series of events occurring soon, such as the US Presidential election this fall and the fiscal cliff facing the US at years end, investors may need to wait to get more clarity on the market outlook.

Consumers have long been the cog behind the American economic engine. After suffering a terrible fate in 2008, there was a long, slow build to post-recession normalcy. Consumer balance sheets are in a better place, but remain tenuous and suggest there continues to be a long distance to travel before we can once again depend on the American consumer to be the buyer of last resort.

Markets posted their best returns of 2012 last week as investors anticipated additional policy action from global central banks. A series of events during the week heightened optimism that central banks would once again step in to support financial markets. In a Wednesday release, the European Central Bank did not cut its policy rate, but ECB President Mario Draghi said the bank was ready to act in response to the deteriorating state of the Eurozone.

During an especially difficult week, global equity markets were deep in the red, as the S&P 500 Index lost 3.2% and the Dow Jones Industrial Average fell 3.3%. There was no shortage of disappointing data during the course of the past week, ranging from weakness in the ISM manufacturing survey to an underwhelming May labor market report. It was such a bad week, in fact, that Bespoke Investment Group found that 18 of the 21 economic indicators released in the U.S. fell short of expectations.

Markets rebounded last week after a two-week slide. The S&P 500 and Dow Jones Industrial Average rose 1.7% and 0.7%, respectively, in a choppy trading period. Discussion of a potential Greek exit from the Eurozone rattled investors, while economic data in the US was modestly positive.

Worries over the European sovereign debt crisis worsened this week as Greeces political instability increased concern that the country could depart the Eurozone. Greece saw a virtual run on its banks during the week, as depositors withdrew 1.2 billion in two days on fears of massive devaluation from a return to the drachma. While this represented just 0.75% of Greek deposits, it foreshadows a potentially larger crisis if a Greek Eurozone departure becomes imminent.

Strength in the corporate sector since the recession ended has been well documented. In the face of general economic malaise, record profits have been achieved through aggressive cost-cutting and low financing costs. This phenomenon has been one of the major pillars propping up the markets (with the other being central bank policy). Now with Q1 earnings season all but over, it is not unreasonable to question whether that corporate strength is fading. Initial impressions of first quarter earnings season were very favorable after the first big wave of earnings releases.

Market sentiment has oscillated quite rapidly in recent months on the heels of dramatic market intervention by the ECB and shifting views of global economic stability. Sentiment is likely to remain unstable in the months ahead as investors grapple with any number of events, from elections in Europe and the US to the end of recent monetary easing efforts domestically. While markets have rallied substantially over the past six months, retail investors are maintaining a somewhat neutral view on their allocations.

In the latest week, the Federal Open Market Committee reiterated its stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. While rates will remain low for now, the Fed will need to fend off other challenges in the months ahead, ones that could send investors racing for the beach sooner than normal. The biggest challenge for the Fed and the economy in the coming months is in the form of Operation Twist. The hope was that such actions would drive down interest rates and encourage borrowing of all forms.

Prior to the financial crisis, hedge funds were largely viewed as alpha generating, high return seeking, portfolio diversifiers. In 2008, that model came under attack from multiple angles fraud, illiquidity, and poor returns being the primary culprit. Ever since that time, the value proposition of hedge funds and alternative investments remains in question, causing some to wonder if this is a make or break year for the space. There is reason to think the environment for hedge funds and active managers is improving.

While the economy has displayed fits and starts of entering a sustained recovery over the past several years, there has been no doubt about the ability of companies to reshape their balance sheets and refocus their businesses. In the midst of first quarter earnings season, there are some concerns that the corporate hot streak will come to an abrupt end, but the reduction in earnings expectations since late last year appears to be favoring another positive earnings season.

For most of the past two years, investors have been pre-occupied with the fiscal catastrophe in Europe and with good reason. However, the relative health of the worlds second largest economy arguably deserves more headline space. A year ago, Chinas stock market led the broader emerging markets down due to pervasive inflation concerns. Official figures reached as high as 6.5%, and some reports of pork and other food price inflation reached double-digit levels. Chinese authorities were forced to slow down the pace of their economy by raising bank reserve ratios and key lending rates.

At the end of 2011, the Long-Term Refinancing Operation brought a modicum of stability to financial markets in Europe.When coupled with the orderly default of Greece, the situation in Europe is seemingly on a road to more pleasant ground. Just as soon as investors place Europe in their periphery, however, problems once again begin bubbling to the surface.In recent weeks, the spotlight has turned to Spain, where unemployment is near 24% and the government is expected to run a 5.9% budget deficit for 2012.

The debate surrounding active versus passive investment management continues to attract a growing share of investor interest. After several years of underperformance, active managers are finally outperforming their benchmarks YTD, but it may be too late. Investors, frustrated with the underperformance and higher fees, are piling en masse into exchange-traded funds (ETFs) and other low cost solutions. The time for an all-passive solution may not be right now, but active managers are undoubtedly concerned about what the future may hold.

Nonfarm payrolls and the unemployment rate headline the weeks economic data. Consensus expects another 200K+ gain in payrolls and no change in the unemployment rate. Other major economic data of note includes the ISM Non-Manufacturing index and the US trade balance. Abroad, there are important releases on tap including Q4 EU GDP and EU retail sales. Both the ECB and Bank of England meet this week, but neither is expected to adjust their key interest rates. Other central banks meeting include Russia, Australia, Brazil, Poland, New Zealand, Indonesia, South Korea, Canada, Peru, and Malaysia.

The continued march higher in oil prices is filtering its way down to consumers in a less-than-favorable way. By the end of the week, the average price for a regular gallon of gas was $3.65, 30 cents higher than the price one year ago. Consumers are all too familiar with the taxing effect of higher gas prices, particularly given the extreme run up early last year. Interestingly, the number of Google searches for gas prices recently overtook those for Greece, suggesting that the domestic economic situation is trumping consumers concern about an overseas shock.

Despite this short-term good news, the cloud hanging over Europe promises to remain for some time. As expected, the first glimpses of fourth quarter GDP reveal a region under severe economic pressure. Growth in the European Union contracted 0.3%, the first such decline since the recession. Most member countries saw their economies shrink, including Germany (-0.2%), Italy (-0.7%), and Spain (-0.3%). On the bright side, France actually surprised consensus with a 0.2% expansion.

Investor interest is acutely focused on the developed world, specifically Europe and the US. All the while, developing countries continue to be better positioned fiscally, with lower debt and better long-term growth prospects. Despite the outlook, stock markets in emerging markets are largely at the mercy of their counterparts in Europe and the US, suffering in lockstep as opposed to embracing the decoupling phase that was supposed to have begun in 2007. According to the IMF, emerging and developing economies grew 6.2% in 2011, compared to a 1.6% growth rate in advanced economies.

The week started slow, however, with a mixed personal income and outlays report from the Bureau of Economic Analysis. While consumer spending was flat in December, incomes grew 0.5% above expectations and the biggest gain since March. The lack of spending growth is concerning, but somewhat expected given stagnating wage growth. Spending to this point has largely been financed through savings, making Decembers income boost a much welcome improvement for consumers.

A thin week of economic data and renewed focus on the European sovereign debt crisis may have prompted profit taking by some investors. Arguably, the biggest development last week was the Federal Open Market Committees (FOMC) press release on Wednesday. For the first time, the central banks decision makers released forecasts for the federal funds rate and the timing for the first rate increase. In that release, the FOMC unexpectedly announced that it expected to hold rates near zero until at least late 2014. This far exceeded previously stated expectations of a mid-2013 rate hike.

Since the start of 2012, global risk markets have all but ignored the overhang of pessimism that frustrated the markets in 2011. For the most part, equity indices already surpassed their gains for all of last year. While such gains may ultimately prove sustainable, there remains a modicum of uncertainty that could rear its head quite suddenly, and quite viciously. In the meantime, an assessment of the investment landscape shows investors may have a legitimate reason for bullishness in the short term.

With economic growth stagnating, global indebtedness remaining stubbornly high, and unemployment refusing to budge, pressure on governments and ordinary citizens is mounting. Financial crises are notoriously difficult to recover from, but the longer-term sociological problems created by such severe declines in output pose a major headwind to the economy in 2012 and beyond.

Equity markets finished their first week of the New Year with positive gains, with the S&P 500 and Dow Jones Industrial Average rising 1.6% and 1.2%, respectively. Those gains, and more, occurred in the first 30 minutes of trading on Tuesday, the first trading day of 2012. From there, markets traded choppily through the remainder of the week, as lingering problems in Europe dampened risk appetites. Investors returning from holiday break received more positive news regarding the US economy, particularly within manufacturing and employment.

There are several economic indicators on tap for next week, highlighted by the third and final estimate for Q3 real GDP.No change is expected from Novembers estimate of 2.0%. Other items of note include housing starts, existing home sales, new home sales, personal spending, and the durable goods report. As mentioned previously, Wednesdays existing home sales report from the NAR will provide clarity on the size of the agencys five-year revision to home sales. This is a potentially significant event, depending on the size of the adjustment.

A multi-day summit in Brussels by European policymakers yielded an expected fiscal union between euro member countries. However, a key refusal by Britain undermined the credibility of the pact. Without unanimous agreement, the original European Union treaty cannot be altered, so a new intergovernmental agreement was created. Some question whether such an arrangement has the teeth to enforce budgetary discipline.

With markets ebbing and flowing and making it virtually impossible to differentiate up from down, it has become all the more difficult to determine what qualifies as an attractive investment. While equity markets rallied into the end of November, volatility remains well above its long-term average, causing most investors to question their equity allocations. It should come as no surprise, then, that individual investors are anything but confident in the latest rally. Macroeconomic headlines and excessive volatility are dampening even the most hardened investors faith in financial markets.

Mounting concerns in Europe and the failure of Congress supercommittee weighed on investor sentiment during the holiday-shortened week. As expected, the congressional supercommittee failed to negotiate a $1.2 trillion deficit reduction by Wednesdays deadline. The move triggers automatic cuts to the federal budget starting as early as this year. Near-term effects are mostly in the form of program non-renewals for example, the expiration of 99-week unemployment benefits, the payroll tax cut, and other Recovery Act stimulus.

It is a shortened week due to the Thanksgiving holiday in the US, but that does not mean investors should tune out. The market will turn its sights on the governments super committee, which is looking less than super. The committee looks like it will not meet its target deadline of November 23, which will likely have negative implications for financial markets. The committee was supposed to find spending cuts that would reduce the deficit by $1.2 trillion over the next decade.

It will be a busy week in the US with reports on inflation, retail sales, industrial production and housing starts. Inflationary pressure is likely to show further signs of easing in October, particularly as food costs continue to stabilize. Retail sales were quite strong in September, but gains for October are expected to be more muted. Earnings season is winding down, with quarterly reports expected from UniCredit, Dell, Home Depot, Walmart, Target, Vivendi, Dollar Tree and Gap. The only major central bank to meet this week is the Bank of Japan, which is unlikely to change rates.

Trading was volatile this week as news that the situation in Greece was not as clear-cut as originally thought sent the markets sharply lower. Those concerns eased somewhat in the last two trading days of the week on news that Greece, and more broadly, Europe, were making progress. Ultimately, it was another month of sub-par employment growth, but there were signs that labor markets remained steady, despite severe headwinds from Europe and concerns about growth prospects for the US. Although 80,000 jobs is nothing to be ecstatic about, the ability of the economy to stay out of negative is.

Economic data in the US will receive plenty of attention this week. On Tuesday, the ISM Manufacturing Survey is released, with economists anticipating continued expansion in the manufacturing sector. Wednesdays ADP private payroll employment report will offer a taste of what is to come in Fridays nonfarm payroll employment report for October. Consensus expectations are for job growth of slightly less than 100,000 and an unemployment rate of 9.1%.

Equity markets continued fighting higher, with the Dow Jones Industrial Average gaining 1.4% and the S&P 500 Index increasing by 1.1% last week. Optimism from both Europe nearing an agreement on its debt problems, as well as positive earnings reports, pushed equity markets higher throughout the week. Since the start of earnings season, slightly more than 300 companies reported quarterly earnings figures. Out of those that reported, 63.7% beat consensus earnings estimates. That is a moderate improvement from the past two quarters, but somewhat below the 65% average since March 2009.

Not only was key economic data, such as retail sales, better than expected, but also the start of earnings season brought about a number of positive corporate earnings surprises.An important caveat is that analysts earnings estimates were routinely cut over the past several weeks, leading to a lowered bar and higher likelihood of upside surprise.Regardless, markets appear pleased by the news, at least for the time being. Over the latest week, each of the major indicators, excluding consumer sentiment, came in above consensus.

A busy economic week brought much-needed relief for investors. With 75% of domestic economic reports beating expectations over the past two weeks, equity markets were able to find stable ground. Additionally, outside the US, new QE measures by the Bank of England and progress on the European sovereign debt situation bolstered investor confidence. Re-anchoring domestically, the news was largely positive across a range of data series, from manufacturing and services to labor. Similar to last year, economic data severely disappointed in the summer but is now showing improvement.

In the latest week, economic data was mixed, but news on consumer income and spending raised concerns over the health of the all-important consumer sector. Even worse, a growing number of economists are highlighting the possibility of recession. One organization, the ECRI, went as far as declaring that recession was unavoidable and warned, theres nothing policy makers can do to head it off. Such dire forecasts do nothing to bolster economic or market confidence. The ECRI has accurately predicted prior recessions, including the most recent one in 2008.

It was a difficult week from a number of standpoints, not the least of which was the growing number of downside risks that rose to the surface. A broad number of financial markets broke down this week, including copper, the Hang Seng and precious metals. Struggles in those markets came from any multitude of reasons, including the acknowledgement of slower growth ahead from the International Monetary Fund and the US Federal Reserve.

With the Fed potentially considering new easing measures this week, economists paid particular attention to last weeks inflation reports, looking for any clue that the Feds current programs are feeding higher inflation. Thus far, the Fed is in the clear, but there is budding inflationary pressure under the surface that is raising cause for concern. In August, the Consumer Price Index rose 0.4%, led by higher food and energy prices. That follows an equally strong increase of 0.5% in July. Consumer prices received a slight reprieve earlier in the summer, but that softness is dissipating.

It will be a somewhat more active week as a number of economic releases are due, including the producer price index, the consumer price index, retail sales and industrial production. Additionally, the Treasury Department is set to auction $32 billion in 3-year notes (Monday), $21 billion in 10-year notes (Tuesday), and $13 billion in 30-year bonds (Wednesday). Earnings reports to follow this week include Best Buy, Diamond Foods, and Research In Motion.

As we head into the fall, investors should prepare for a continuation of this summers volatility.While August is viewed as a challenging month for the markets, September reigns supreme as the worst month for market performance historically. Dominating the headlines this week will be an announcement by President Barack Obama on Tuesday regarding plans for boosting job growth and increasing budget savings. Across the globe, services PMIs will be released this week, and akin to the global manufacturing PMIs, declines are expected.