Q2 2014 Market Summary for Clients

The recovery continues.

After a small dip to start April, markets mostly went up and to the right. Very little resistance was offered to the point where the bears started beating their chests again about valuations and a long overdue correction in equities. We didn’t get much from stocks in the first quarter so it was nice to make progress this quarter.

We have had selling in U.S. markets 3 of the last 4 days (written 7/10), two days ago being somewhat intense but followed by a light positive move yesterday. The S&P 500 is trading at a price above its long run average. Are we starting a correction? Maybe, however, the recovery for our economy continues and without some change to underlying economic fundamentals my guess is that any sort of correction will be limited in scope and also healthy for markets.

It’s good to have naysayers and bears to keep the bulls in check although it’s unfortunate that many of people whose opinions find us are mostly marketing. It’s good to occasionally flush the overheated stocks so positive momentum can build anew on more solid footing.

For the quarter we experienced better upside from emerging markets (up at least 8.03% YTD as of today) and my clients with more diversified portfolios also got a nice bump from global real estate (up 16.29% YTD for one of our funds). Large U.S. stocks have been outpacing their smaller brethren and we’re all tilted at least somewhat toward the small for the long term potential. International developed markets stocks didn’t do us any big favors but pretty much everything we own is making us at least some money this year.

Job numbers in the U.S. have been pretty good as of late, although millions continue to stay out of the work force, and people are back to buying cars like they did before the economic crisis. European struggles grind on but they look relatively better while the biggest emerging economies around the globe are mostly growing below their long run potential.

It’s likely the Federal Reserve will finish winding down bond buys by October of this year and the guess for upping interest rates remains middle of 2015.

I think we are still in the earlier stages of global economic recovery and that positive developments, on average, are possible for several years to come. Good economics doesn’t always coincide with rising markets but it certainly can be helpful.

Bonds have done well this year as interest rates have been stable.

As always, I truly appreciate the confidence you’ve place in me with your assets and I want you to feel free to call at any time regarding your portfolio or any personal financial matter.

Sincerely,

Erik S. Wolfers, MBA, CFP®