School is back in session, baseball is winding down and football season is here along with end-of-summer BBQ’s and cooler weather. It’s also time to look at how the markets did during the summer quarter and to give commentary on where we see risk in the markets.
Summary, Last Qtr: In Q3, the economy saw significant improvements although Federal Reserve Chariwoman Janet Yellen, and other members of the FOMC, showed that they are determined not to raise interest rates too early and risk hurting the improving, but delicate, economy. Consumer spending makes up about two-thirds of total economic output, and consumers are spending more than they did before the onset of the recession. Despite this strong spending, the rate of growth has been slowing in recent years as consumers have become more cautious, likely due to slow growth in wages. That being said, with rising demand for retail loans, a testament to much improved household financial conditions and confidence, commercial and industrial loans showing increasing loan demand, which shows firms are willing to invest in their businesses again, and labor market health continuing to strengthen (jobless claims are at a seven year low and private job openings are increasing), the U.S. economy should sustain its momentum for the near term. The bigger risk lies across the globe, in Europe and Russia, as Europe’s recovery continues to disappoint. The situation in the Ukraine and Russia, not to mention Middle East tensions, are putting a damper on what could be a historically great economic return.
Our Commentary: We continue to see equities as an area to overweight and the fixed income area as one to reduce exposure, or at least to reduce exposure to long term bonds. With the political risk environment and the slow interest rate rise, we see this year as favoring equities but the political turmoil will likely cause shocks to the markets and create a more volatile environment. US equities continue to lead all markets and we believe this should continue for the near future, with international equities also a possible area for positive developments, however the Russian tension and slow economic recovery of the Eurozone has been a disappointment. We also see expected interest rate risk remaining, and potentially increasing, as the economy continues to improve while translates into bond market risk. Investors may want to use bond “replacement” portfolios, which are typically comprised of alternative investments.
Our Investment Committee periodically monitors the markets and will continue to provide comments at the beginning of each quarter. Each portfolio is different and we recommend getting individual help, which we are happy to provide.
Here’s to a great fall, and we will update in Q4 2014!
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods. Past performance cannot guarantee future results.
Fixed income securities carry interest rate risk. Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Opinions voiced are not intended to provide specific advice and should not be construed as recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial professional.
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