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.
Other articles filed under News
April 24, 2019
Stock Markets Stocks rebounded nicely. Tech stocks (FANGs – Facebook, Amazon, Netflix, Google) after leading the way down in last year’s fourth quarter (off 22%) led stocks back up (up 23%). A global stock portfolio earned about 12% this quarter...
April 22, 2019
Many of us are familiar with insurance for your home, auto and life, but the reality is - we don't often know our specific coverages until we need to make a claim. Insurance has become so specific it’s worthwhile to...
April 19, 2019
It’s no secret that since the Financial Crisis value stocks have underperformed growth stocks. Many theories exist as to why this has happened, none of which can be confirmed as truth. This begs the question “what does this last decade...
April 17, 2019
If you’re like most people, you know that planning to achieve your financial goals involves more than just budgeting and saving for retirement. You’ve undoubtedly received financial advice, solicited or otherwise, from some combination of family, friends, coworkers, or even...
February 8, 2019
Over the summer, we had a client ask if there was a place to look for existing accounts or funds they or family members may have accumulated and forgotten about over the years. That sparked Julie’s memory of the New...