The S&P 500 fell 3.3% and the Dow Jones Industrial average dropped 2.5% in the 2nd quarter. Meanwhile, 10-year US Treasury bonds returned 5.8% and 30-year US Treasury bonds returned 12.7% in the 2nd quarter. Healthcare and Utilities are the only two sectors to end the quarter in the green with utilities leading the way up 2% since March 31st. The Utilities Select Sector SPDR® ETF (ticker: XLU) is yielding 3%. Financials, industrials, basic materials all finished the 2nd quarter in the red. Clearly safety and income themes remain in vogue.
Crude oil fell 22% from $106 to $82 a barrel. Gold outperformed oil but still fell 3.9% to close the 2nd quarter at $1598.
Geopolitical risk is rising in the Middle East. Syria downed a Turkish fighter jet that momentarily crossed into Syrian airspace further straining relations between NATO and Syria. Concurrently, Iran is yet threatening to block the Strait of Hormuz after western nations put an embargo on Iranian oil exports. Any rise in oil prices due to rising tensions in the Middle East should buoy energy producers here in North America.
Ben Bernanke didn’t announce any more money printing or as the Federal Reserve calls it, “Quantitative Easing,” often abbreviated “QE.” According to a recent Merrill Lynch fund survey, over half of all fund managers are expecting more asset purchases by the Federal Reserve before the end of the year. If core inflation remains above 2% and stock prices tread water, then the Federal Reserve will probably not do any “Quantitative Easing.” The Fed will not want to attract negative attention from politicians as the presidential election heats up. We expect this lack of action will disappoint market participants. They are expected to be more active in hitting the sell button on the more cyclical sectors of the stock market.
Over the next 12 months expect the markets to be volatile as the global economy continues to slow down. US Treasury bond interest rates should remain at historically low levels as global investors seek out safe haven assets. Further, don’t expect the European Debt Crisis to sort itself out for at least a year. Consequently, the US dollar should continue to remain strong. This could hold the price of gold below $1600 per ounce as the two are generally inversely correlated. For those that don’t own any gold, this weakness represents an opportunity to add an “instability” hedge to your portfolio.
Dark Horse Wealth remains focused on investment allocations that are heavily biased towards steady streams of income from both stocks and bonds. The current interest rate on 10-year Treasury bonds is 1.5% and the dividend yield on the S&P 500 is 2%. Investors should use these rates as benchmarks when reviewing their portfolio income profile.
Make sure that your retirement portfolio will not be dragged down by overzealous advisers that expose your retirement asset to the more volatile portions of the markets in order to prove their “worth” to you. On the flip side, participants will find out who is using the buy and hold as a copout. The coming months will separate investment salesman from investment advisers.
Saving is something you can control.
Maintaining your savings’ “value” is your adviser’s job.
Dark Horse Wealth
2nd Quarter Recap