After a period of relative calm, volatility returned to all financial markets in May and June.  Core bonds lost -3.3% from May 1 through June 30—one of the worst two-month declines in the benchmark’s 37-year history.  Long-term Treasury Bonds lost -9.8% in the last two months of the quarter.  Gold, which is typically a safe haven during market turmoil, was not spared—losing -15% from May 1 through June 30, and melting -26.5% for the year to date.




S&P 500



International Stocks



European Stocks



Emerging Market Stocks






Bond Market



Muni Bond Market



The underlying driver of all this volatility are pronouncements from the Federal Reserve about the future course of monetary policy, and, specifically, the Fed’s plans to begin “tapering” its QE (quantitative easing) bond-buying program.  This is a theme we’ve previously written about: the unusually heavy influence of monetary policy on the financial markets in the aftermath of the 2008 financial crisis.  In our view, this helped to boost the U.S. stock market to levels beyond what may be justified by the longer-term economic (earnings) fundamentals.

For 2013, the Federal Reserve’s actions have impacted investors through two main factors:  bonds and non-US stocks.  First, conservative investors generally hold a significant allocation in bonds, but for the first time in several years, bonds sold off quickly causing stress to even the safest of portfolios.  While most have lost value this year, some subcategories, like high yield and floating rate, have remained positive.  We have discussed these in earlier articles and continue to use them strategically in portfolios.

Non-U.S. stocks are the other factor impacting returns.  Most investors maintain a diversified stock portfolio that includes investing in great companies outside the U.S. which adds value over time.  For 2013, however, the U.S. has been about the only place to make money as the chart above clearly shows.  The return gap is so unusually large that it also creates an opportunity going forward.  Therefore, we believe the easier money to be made over the next several years will be overseas where their markets are much cheaper than the U.S.

Investments are the only item people want to buy more as prices rise and less as prices fall.  Thus, there is often a big difference between current price and true value.  As with tech stocks in 2000, real estate in 2005, and gold in 2011, it pays to be careful as prices rise and to start looking for better values elsewhere.  It does not make sense that U.S. stock prices can continue to rise at their current pace with our economy growing at only 2% while the prices (not values) of most other asset classes around the world lag or decline.  While we plan to keep a substantial allocation to U.S. stocks, we believe the best values/opportunities going forward lie elsewhere.

We remain focused on both managing overall risk and capturing compelling long-term investment opportunities.   If you are concerned that your money is not working as hard as you are, we are here to help.  We can be reached at 800-492-1107 to provide you confident progress to your retirement goal.