Equity markets had a rough second quarter. For the period ending June 30, 2012 the S&P 500 index (large stocks) was down 2.8%, the Russell 2000 index (small stocks) was down 3.5%, and the MSCI EAFE index (international stocks) was down 6.9%. The international index might have seen a double-digit decline were it not for some good news on the European debt crisis and a big rally on the last trading day of the quarter.
At the end of the first quarter I noted that, “the European debt crisis seems far from solved, and yet just the absence of bad news has had a surprisingly positive effect on global equity markets.” Bad news returned in the second quarter, and the results reflect it. Of course the discouraging new information was not limited to Europe as the Chinese economy showed signs of slowing down, and the U.S. recovery continues to struggle. Nonetheless, returns for the year to date remain in positive territory, even for the international markets.
Portfolio returns were also buoyed by the strength of fixed income returns. The broad bond index that we track was up 2.6% and some long-term government bond funds were up 12%. The yield on 30-year Treasury bonds fell from 3.35% to 2.76% during the quarter, causing the jump in value, but reflecting the market’s expectation that low interest rates will persist for many years. For anyone who thinks rates MUST go up from these levels, it is instructive to consider Japan. Ten-year government bonds in Japan have been around or below 2% since 1998 and now provide a yield of just 0.85% (U.S. 10-year debt was yielding 1.67% at the end of the quarter).
2012 is showing once again that stock market returns can only be enjoyed if we are willing to accept risk and volatility. We can also observe the benefit of diversification and the way bonds reduce volatility in a stock portfolio.
Craig Buckhout is a Chartered Financial Analyst, and Principal at Rockbridge Investment Management. “In the early 1990s it became clear to us that ordinary people were going to need help managing their substantial savings, as 401(k) plan assets began to replace pensions as a source of retirement income. After spending the first decade of my career in the world of corporate finance, I was excited to work with clients and apply institutional investment principles to help them achieve their goals.” Craig holds his BS & MBA from Cornell University, and is a member of the SUNY ESF (College of Environmental Science and Forestry) Foundation Board – Treasurer, CNY Community Foundation – Board Member.
Learn more and/or Contact Craig
Other articles filed under News
October 22, 2018
Stock Markets For the last quarter, stocks are up except for Emerging Markets, which were close to flat. Domestic stocks are seemingly shrugging off the uncertainties of increasing interest rates, trade wars and tariffs. Year to date, an Emerging Market...
Continue Reading
October 16, 2018
Interest rates are rising, and yet you may not be earning much on your cash. As financial markets finally begin to reflect a recovery from the crisis of 2008-09, the brokerage industry is changing the way they handle customers’ cash,...
Continue Reading
October 12, 2018
We had several clients this year reach out to ask how bonds were performing in their portfolios. These are great questions, so we created a few items to address what you see in your statements. Some people notice they have...
Continue Reading
October 9, 2018
“Give, but give until it hurts.” - Mother Teresa - I don’t think Mother Teresa paid much attention to the tax code, but her quote is unusually prescient for 2018 taxpayers. The changes have made it unlikely to get...
Continue Reading
September 20, 2018
How does/and how much does your advisor get paid? Fees matter. It is important to know how much you are paying and the value you receive for that payment. If you're paying 1% or more for only investment management with no...
Continue Reading
Copyright © 2018 Rockbridge Investment Management - Syracuse, Binghamton, Watertown & Utica. All Rights Reserved. | Privacy Policy
