I thought I’d give a quick market update on a time period that we can relate with, instead of a calendar quarter or whatever, so this discussion will cover the summer (starting June 1) and going until the present day.

First off, it was in May that the Dow Jones Industrial Average first crossed 15,000, and it was in June that the Dow first fell below that mark (on that note, I want you to NOT focus on round numbers because they really don’t mean anything; they are simply a number.  But I digress…).  The summer brought many bits of news that had concern potential:  Syria (now seemingly on the back burner), the Fed’s tapering (more on that here), job market stagnancy (ultimately better than a decline), and uncertainty about the Chinese economy.

July was a very strong month, during which time the market rarely went down; August was the exact opposite, and the month ended (as I’m sure you noticed on your recent monthly investment account statements)  down 3-4% for large-cap equities (the Dow was down 4.5%, but the S&P 500, a better broad-market indicator, was down 3.1%).  Note that, during August, stocks on the NASDAQ (generally smaller stocks) were only down 1%, and the MSCI EAFE (international stock index) was down just under 2%.  This was a great example of why I preach, and practice, asset class diversification in investment accounts.  In any case, September has already started off well, with the S&P up 2.2% in the last 9 days, the NASDAQ is up 3.1%, and international stocks (again, MSCI EAFE) up 4.5%. 

On the bond side of things, during the summer and up through last week, 10 year Treasury bond yields have increased nearly 40%.  This, I think is ultimately good news as yields have been shockingly low for almost 5 years now (remember the good old days of 4-5% savings account interest rates?), and this period may be coming to a close, but don’t expect it to come fast.  The bad news is that the bonds and bond funds in your account(s) have declined in value proportionately.  This is because the rates that you have are locked in, which become less attractive as market rates rise.  This is precisely why I don’t believe in ‘laddering’ bond maturities: your investment objective, as well as the current economic cycle, matters more than some pattern of years on your statement.  With current rates this low, an intermediate bond duration still makes much more sense as it continues to be way too risky to lock in a long-term rate that will prove to be low later as rates rise.

What’s next on the horizon?  The Federal Reserve will have a new chairman in four months, and it will be their job to continue to shepherd our economy out of the depths.  We’ll see how well they do, but I’m optimistic.  In the meantime, please feel free to call me if you would like to discuss anything.