Jul 09

Market Commentary July 2013

by Anthony Farella

Volatility returned this quarter in both stocks and bonds as fears about the central-bank actions across the globe made investors nervous about the future.  Large Cap U.S. stocks, represented by the S&P 500 Index, returned 2.9% in the second quarter, bringing the year-to-date return up to a lofty 14.0%.  By contrast, the EAFE Index, a measure of developed international markets, lost 1.0% in the quarter, bringing the year-to-date return down to 4.0%.  In fact, as shown in the graph at right, no other asset class comes even close to the return on U.S. stocks so far this year.

Bonds
The Barclays U.S. Government/Credit Index had a negative return of 2.5% for the quarter.  Bond returns move in the opposite direction of interest rates.  The yield on the 10-year Treasury moved from 1.6% at the beginning of May all the way to 2.6% in June, before pulling back slightly to end the quarter around 2.5%.  The increase in interest rates was the cause of the negative bond returns for the quarter.

Bond markets were hammered after Fed Chairman Ben Bernanke announced last month that the bank may start winding down its bond-buying programs.  The Fed policy of buying bonds to keep interest rates artificially low was intended to spur the economy and reduce unemployment.  Many economists came out against the policy fearing a dramatic increase in inflation.  However, inflation has been quite modest and the market expectation for future inflation is quite low.  While the Fed policy continues to be controversial, the unemployment rate has fallen to 7.6% as of the end of May 2013.

We still expect challenges ahead for the bond market as interest rates rise.  However, we cannot predict when and by how much rates will rise in the future.  Therefore, we continue to advocate holding high quality bonds in a portfolio.  Bonds dampen volatility of a diversified portfolio while also providing income over a long investment time horizon.

Other Asset Classes
Emerging Market stocks continued their year-long decline, reporting a negative return of 8.0% for the quarter.  Global uncertainty in these young volatile markets likely fueled the sell-off in emerging market stocks.  The Dow Jones REIT Index, a measure of the U.S. real estate market, also reported a negative return of 1.3% for the quarter but was positive year-to-date with a return over the last 6 months of 5.7%.  Emerging Market stocks and REITs continue to offer investors diversification benefits in global portfolio construction.

About the Author

Tony Farella, is a Certified Financial Planner® and a Principal Founder of Rockbridge Investment Management.  Tony is a contributor to Forbes, CNN Money, NAPFA’s FI Guide, Advisor Perspectives and local tv, radio and print publications.  Tony is the board director for NAPFA New England-Mid Atlantic Region), previous board member of the Financial Planning Association of CNY, acting Board Member of the Downtown Syracuse YMCA, as well as the Board of Directors for Countryside Credit Union.
Learn more and/or Contact Tony »


You Might Also Like

Other articles filed under Investing

Brexit Votes and Market Outcomes

June 24, 2016
Believe me, we get it. After yesterday’s Brexit referendum and its startling outcome, it’s hard to view today’s news without feeling your stomach twist over what in the world is going on. Whenever the markets scream bloody murder, your instincts...
Continue Reading

Investing and Entertainment: John Oliver’s Take

June 23, 2016
Thanks in part to our evidence-based approach to investing, we don’t have to eat our words or advice very often. But recently, we discovered that we stand corrected on one point. Fortunately, it’s a point we’re happy to concede: Evidence-based...
Continue Reading

How to Get the Right Financial Adviser

June 16, 2016
Selecting the right financial adviser is crucial. You want someone who is trustworthy and who will act in your best interest, but they are not as easy to find as you would think. A recent article in the Wall Street Journal...
Continue Reading

A Simple Guide to Life Insurance

June 13, 2016
Life insurance is often sold as a “one size fits all” product; it will serve as protection and as an investment account that will grow at an impressive interest rate.  When you take the time to unwind these products, you...
Continue Reading

Should I Google My Retirement Plan?

June 1, 2016
A simple Google search for “retirement plan” or “retirement calculator” will provide thousands upon thousands of results.  The number of websites that promise to provide retirement or financial guidance in a short amount of time are plentiful.  The real question...
Continue Reading

‹ Back to Blog Home

getting started is simple

315.671.0588 info@rockbridgeinvest.com Schedule a meeting Sign Up for Our Newsletter