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All Weather Investing: Second Quarter 2013 Capital Market Update
Last Updated: July 10, 2013
Strength in domestic and international stock markets continued during the second quarter, fueled by continued easy monetary policy from the Federal Reserve, and poor yields from fixed income investments. However, the rally in stocks fizzled following Federal Reserve Chairman Bernanke’s press conference on June 19th over concerns that the Fed would slow its asset purchases, leading to higher interest rates and slower growth.
For the second quarter ending June 30, the Dow Jones Industrial Average finished up 15.20% year-to-date, and 18.23% over the past 12 months. The broader S&P 500 Index posted gains of 13.82% year-to-date, and 20.60% for the past 12 months. International stock markets posted smaller gains reflecting continued concerns about the European Union and slower growth in China. The MSCI EAFE (Europe, Australasia, Far-East) Index posted a 4.10% return year-to-date, and 18.62% for the 12 month period.
Fixed income markets did not fare as well due to concerns over higher interest rates. The broad-based Barclays U.S. Aggregate Bond Index returned -2.44% year-to-date, and -0.69% over the past 12 months. Bond investors took on more risk fueling growth in non-investment grade bonds, as measured by the ML US High Yield Master II Index, with returns of 1.46% year-to-date, and 9.55% for the 12 month period. Meanwhile, the more conservative US 10-year Treasury Bill index posted negative returns of -2.66% year-to-date, and -3.43% over the 12 month period.
The summer months have been historically slow periods for companies, followed by improved business during the second half of the year, as back-to-school and holiday shopping spurs growth. Markets may remain volatile in the near-term as investors digest earnings results and the outlook for growth.
We recommend that investors build diversified portfolios that can weather different economic conditions with the long-term goal of providing for needs in retirement. Economies and markets are cyclical, and experience various periods of growth and contraction. The positive momentum of stock markets that carried over from 2012 is facing some of the headwinds that we’ve discussed in previous updates – higher interest rates, slower growth, and geopolitical uncertainty.
Investors should review their investment portfolios to make sure that they have the appropriate mix of stock, bond, and cash investments based on their time to retirement, risk tolerance, and return goals. By diversifying across asset classes, investors have exposure to investments that provide growth, income, and preservation of capital (liquidity) through various economic cycles.
Please contact a Pension Consultants Investment Consultant at 800-234-9584 for additional information.
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