Q4 2013 Market Summary for Clients

U.S. markets finished Q4 and 2013 on a high.

The S&P 500 rose a bit over 32% in 2013, the best annual return since 1997. The best U.S. stock fund we own rose over 43% while our best international stock fund was also up over 32%.

Wonderful year, great year, it’s tough to not love much of what we got from developed stock markets around the globe. However (you knew this was coming), emerging markets stocks and bonds weren’t so hot. Our most commonly owned emerging markets fund dropped 2.64% for the year while one of our core bond holdings fell 2.87%. This is less fun and doesn’t feel nearly as good but thus is the nature of diversification.

At some point emerging markets stocks are likely to provide a boost and while bonds had a pretty awful year for bonds, they are still doing their job of providing relative stability while paying monthly income and thus helping the portfolios in which they reside overall.

Years ago, when things got really ugly, I wrote about the potential for a prolonged recovery following the panic. At the time it was hard to comprehend the severity of the downturn, and the exact nature of the recovery, but it is happening. The U.S. has been recovering slowly for several years in part hampered by the even more slow recovery in Europe and emerging markets.

Europe is now showing glimmers of hope while places like India and Brazil are still struggling a bit. China goes every few months from looking like it has some potential for greater growth to not so much. Japan is not doing so bad.

Developed markets stocks have done well to the point of possibly worrying whether the short term investors will decide in meaningful numbers that things have gone too far and they need to “take some profits,” or “take some money off the table,” or “preserve their capital.” There’s really no way to know what the speculators will do from one day to the next but for the moment the intermediate term global economic outlook seems to be pointed in the right direction.

Our Federal Reserve Bank believes this to be the case and has finally decided to ease off the gas pedal a bit with respect to stimulus. The markets took this decision in stride after lots of fear and gyrations about what would happen if they did start to ease. Personally, I take their decision to ease stimulus as a positive. It’s likely short-term interest rates will stay low for some time which should help us keep the momentum.

Our legislators seem to be working out budget issues with relative calm, another positive.

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®