Two Steps Forward, One Step Back


The U.S. and many world market indices were looking at modest gains for the second quarter until they ran headlong into the month of June, when a variety of concerns came together to drive stock and commodity prices lower almost everywhere in the world. That said, the losses of the second quarter were generally not enough to overcome the gains of the first three months of the year, and so many indices are still ahead for the first six months of 2011. The Financial Times All World Stock Index, a reasonable proxy for the equity portion of most client portfolios that I manage, is up almost 5% for 2011 thus far, even after factoring in all of May’s and June’s worries.

Despite lingering concerns about inflation, commodities prices were almost unanimously down for the second quarter, led by energy (down 7.94%), agriculture (down 12.09%), livestock (down 9.80%), aluminum and nickel (down 5.32% and 10.32% respectively). Gold was up 4.29% to finish the first half of the year at a 5.42% gain, about on par with global stock returns year to date.

Bond yields and CD interest rates continue to scrape along the floor; you can get a 0.02% yield on 3-month Treasuries currently, 0.10% on 6-month government bonds, and neither the two-year (0.45%), three-year (0.79%) or 5-year (1.75%) US government bonds are dramatically higher.

But the rocky month of June, which started with six straight days of losses in the U.S. markets, is further evidence that even positive growth and positive returns don’t guarantee a smooth ride. The returns of the first half of this year have come with their share of anxiety, most of it concentrated from mid-May through mid-June, which was also the case last year. Furthermore, just to prove that what happened last week, last month or last quarter has no terribly predictive value of what’s to come, remember that the 4th quarter of last year saw equities rise substantially enough to make 2010 a net +15% year in US markets, despite the anxiety, despair and malaise of the spring and summer. Additionally, if we look back only as far as this spring and early summer, we saw the Dow Jones industrial Average having fallen from April’s 12,800 to June’s 11,900 in six weeks. Sitting at the bottom of a 900 point decline, there was very little in the news at that time to indicate that we would see it rise as quickly as it did back to 12,700 in early July, almost all of that lost ground regained within a three week span.

As always, I’d be happy to talk over in more detail if that would be helpful, so please let me know if you have any questions or if there is anything I can do for you.