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

Market Commentary- April 2017

April 24, 2017
Stock Markets The accompanying chart illustrates the diversification story. It shows returns in several markets over both the March and December quarters. The upward sloping blue columns of the December 2016 quarter show an increase from the low (4% loss)...
Continue Reading

I Thought Interest Rates Were Going Up – What Happened?

April 21, 2017
On March 15, 2017, the Federal Reserve increased interest rates for just the third time since the financial crisis in 2008-2009. Investment theory tells us when interest rates rise, bond prices fall, so rising interest rates are bad for bond...
Continue Reading

Market Timing – A Losing Game

April 17, 2017
The stock market crash of 2008-2009 is a very recent memory for many investors who still bear the scars from the experience. At Rockbridge, we also have prospective clients who walk into our offices saying that they haven’t recovered yet...
Continue Reading

Unique Planning Opportunities with TIAA Traditional

March 23, 2017
Teachers Insurance and Annuity Association, better known as TIAA was founded almost 100 years ago (1918). TIAA provides retirement plan solutions for a majority of the higher education institutions in the United States. One type of investment, called the TIAA...
Continue Reading

Market Commentary – January 2017

January 23, 2017
Stock Markets While markets were down early in the quarter, most, but not all, have bounced back since the Election with small company stocks and value stocks leading the way.  Stocks traded in international markets and emerging markets have not...
Continue Reading

‹ Back to Blog Home

getting started is simple

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