Market Re-cap: 1st half of 2012
The first half of 2012 has been a long volatile struggle to say the least. The shining star globally has been the S&P 500 with gains of close to 5% (depending on the minute you look at the numbers). The US aggregate bond market has been flat with nominal yields. European Markets are strangled by the debt crisis and at times looks like there is no near term solutions.
That being said, we are seeing slow growth in the US housing Markets and slightly positive GDP growth, and employment numbers. Nothing that gives a huge boost to confidence but not negative. So, with all that is happening globally, what do investors do? We believe that maintaining your asset allocation is still the best strategy. Most investors are muddling through with marginal growth in their portfolios with 40% +/- in bonds flat over the last 2 years. But, it is important to remember why you have diversification.
Diversification is the main component to manage volatility and catastrophic portfolio events. Does it always work in your favor, NO. In a market like this one, a bond portion may have just maintained principal with 1-2% yields. The flip side, it provides comfort when we have -200 pt days in the DOW. If we knew the markets would go up all the time than we would suggest a 100% of your money there. I tell my clients all the time that “we can’t control the markets, only how much we have in them”. This holds true in this dismal decade of growth.
We anticipate this same type of 2 steps forward, 1 step back scenario until November. The markets globally do not like uncertainty. We have seen this through the headline news from Europe. Will a default of Greece directly affect the US? In my opinion, not much, the question is what would be next, i.e. Uncertainty. Our own uncertainty of the Presidential Elections (health care, corporate taxes, income taxes, jobs picture, oil, Middle East… you get the idea) should hold the economy and growth at a standstill. We will need to see how the cards are played and move onto the next game after the elections. I think we will still see 8-10% growth from the broader markets and begin to see yields in the bond market start to climb as investors and corporations get more certainty on where we as a country and government are heading.
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) maybe appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.