Sometimes Expected Doesn't Make it Any Easier
As we complete our meetings with clients whose review dates fell during these summer months, we have sounded a bit like a broken record. “This pullback was expected,” we have said. We have been forewarning of it in different “Weekly Market Commentaries” and other blogs throughout the year. This market’s recovery has had a distinct signature since 2009, we drone on. We believe that signature has been a good first quarter; bad second quarter; neutral to bad third quarter and a good fourth quarter. Furthermore, economic activity while still historically anemic we believe is showing some signs of recovery in the all-important housing sector. Still, the S&P 500 this year has only had one pullback of over 5% while the S&P 500 typically has three of 5% or more in any given year when it hits all-time highs.(1)
Even with all of this advanced information, it doesn't help as the market suffers apoplexy with tapering worries that further exacerbate the second and third quarter’s slide and you see your account balances drift southward. I would like to take you back to August 20th’s “Weekly Market Commentary: Markets Entering Area 51” as discussion centered on whether markets can rally in rising interest rate environments.
On four different occasions over the last 20 years when rising bond yields have accompanied economic growth and the increases lasted for at least one year and yields rose by at least 1%, the S&P500 rose in all of those twelve month periods.(2) However, if you read the August 20 Weekly, you noticed the graph that clearly showed that stocks rose substantially while bonds dropped. So what about your bonds?
As we stated in our email to clients on July 16, 2013, we have made wholesale changes in most portfolio’s defensive pieces. We have sought assets that are not interest sensitive or correlate directly with bonds and if they are interest-sensitive, they may benefit portfolios when interest rates are rising. We have also positioned most of our portfolios in equities that we believe may be beneficial to our clients should the recovery’s feasting cycle of the fourth quarter continue.
We believe there will be more volatility; more economic bad news; and more Middle-Eastern strife that will provide doubt. We don’t time when the results will occur, but we are there when they do. So while we know you know…we are sensitive in the interim as we wait patiently for market’s repeat performance.
(1) As referenced in "Weekly Market Commentary - Markets Entering Area 51," August 2o, 2013.
(2) As referenced in "Weekly Market Commentary - Markets Entering Area 51," August 2o, 2013. Chart 1 which highlights rising interest rates have been good for stocks on 10/15/1993, 10/5/1998, 6/17/2003, and 7/24/2012. Chart source LPL Financial, Bloomberg data as of 08/17/2013. • The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. • The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. • Stock investing may involve risk including loss of principal. • The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.