Investment Commentary - 2nd Quarter 2012

Stock investments roared into 2012 with the S&P 500 closing the first quarter up 12.59%. International markets also posted strong quarterly returns as investors seemed to feel that Greece compromises helped to avoid a chaotic default and seemed to buy some breathing room. The quarter was also notable formuted volatilityin equities. While stocks zoomed, bonds stalled and their returns were relatively unchanged.


Source: Morningstar Direct

Economic data seems to be disappointing bulls and bears alike. Pessimists are predicting recession, but leading indicators continue to suggest that things are getting better. Those more naturally optimistic are looking for better employment numbers and decisive growth. We break down unemployment trends here.For now, we think it’s best to be constructive and cautiously optimistic.

The exceptionally strong market returns of the last six months may mean that it’s time for a breather, or (in market speak) consolidation. Longer term, balance sheets and stock earnings continue to indicate corporate health. Another indicator, University of Michigan Consumer Sentiment, shows recovery off of depressed lows over the summer, but is below the 30-year average. Keep in mind that stock dividends are rivaling Treasury bond yields and we are comfortable maintaining neutral allocations to stocks.


As the saying goes, “Don’t fight the Fed” and Operation Twist coupled with European Central Bank liquidity injections seem to be helping to support modest growth. On April 11th, Vice Chairman of the Fed, Janet Yellen, indicated that low rates could extend beyond 2014if the pace of growth fails to accelerate. For more on the impact of recent Quantitative Easing on stocks, click here.

The lackadaisical recovery and Fed accommodation may be buying time for bondholders as the Fed works to keep interest rates low. Data shows that investors have continued throwing money into bonds in spite of the threat of rising interest rates. This may be good news for stocks as strong returns were not driven by investors “crowding in”. Conversely, the nearly insatiable public demand for bonds gives us pause. Those relishing the relative comfort that bond investments have offered in the past thirty years may want to reconsider future assumptions. Learn more about our concerns in bond markets and how we’re investing here.

We’ve just completed a blog series that discusses components of our investment process that you might find helpful.

Introduction: The Investor’s Chief Problem

Strategic Allocation: Building Your Foundation

Tactical Allocation: Deck the Halls with Tactical Allocation

Types of Investments: Time to Declutter

Buy Process: Salad Surprise

Sell Discipline: The Gambler

Rebalancing: Game Plan

If you have topics you would like us to cover in the future, please let us know! As always, we appreciate the opportunity to meet your financial planning and investment needs. Thank you!


Melissa Joy, CFS

Partner & Director of Investments

Financial Associate, RJFS

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Melissa Joy and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Please note that international investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. Dividends are not guaranteed and must be authorized by the company’s board of directors.