Market Update – Fall 2013

The quarter ended with a surprising twist. After signaling at its June meeting it might begin tapering its monthly bond-buying program if economic data pointed to a sufficiently strengthening economy, the Fed ultimately opted to stay the course. Shortly thereafter, the spotlight shifted from the Fed’s monetary policy to the nation’s fiscal policy when the inability of Congress to reach consensus on a budget led to a partial government shutdown.

Despite these obstacles, U.S. stocks were in the positive for the quarter and developed international markets outperformed U.S. stocks by a wide margin. After a rocky start to the year, emerging-markets stocks also had a strong rally. Core bonds were modestly positive for the quarter thanks to the rally which occurred after the Fed’s decision to delay tapering.

New economic data is released several times a week and – regardless of improvement – most headlines continue to seem a little melancholy. News stories focus on the negative and predict the next quarter won’t be any better. The media doubts corporate America and does not take our very-adaptable economy seriously. Many are still bitter 2008 happened and want to measure forward growth against perfection rather than looking back over the past few years and acknowledging we’ve made progress.

Skeptics quickly point out that our economy – and stock prices in particular – have recovered only because the Fed artificially enhanced the recovery. Maybe. However, U.S. GDP today is almost $700 billion higher than it was before the financial crisis. S&P 500 earnings have grown for the past 15 quarters in a row and GDP continues to grow. Our economic strength is the driving force behind higher stock prices.

One of our best “American” attributes has always been that we move on, adapt, and reinvigorate ourselves. The glass remains half full, so don’t focus on the media’s lackluster headlines. As investors continue to realize how strong the American economy really is, they’ll keep pushing stock prices higher as corporate earnings rise.

While we expect the U.S. to continue to perform well, we also believe the case for investing outside the United States is compelling. Europe is slowly climbing out of its recession and the developing world continues to grow faster than the U.S. From a long-term perspective, the most important reason for having a globally diversified strategic mix of asset classes is it should provide a much smoother ride than simply being invested in U.S. stocks. The second reason to invest outside of the United States is to tap into a broader investment opportunity set – much of which is not well covered by Wall Street – thereby allowing active managers to add significant value. These factors helped portfolios in the past quarter and we expect them to add value over the years ahead as well.

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.

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