During the first half of 2013, the U.S. stock markets had their best five-month start since 1999, but then came June. Through mid-May, investors continued to buy on news of higher home prices, record corporate earnings and improving job numbers, sending the Dow Jones Industrial Average and the S&P 500 indices to new all-time highs. But volatility crept back into the markets in late-May, and after Federal Reserve Chairman Ben Bernanke announced that the central bank could begin to wind down its stimulus program later this year, investors reacted to make June the first negative month in 2013.

When the dust settled, the Dow gained 2.2% in the second quarter and 13.8% for the first half of the year. The Nasdaq was up 3.9% for the quarter and 12.7% since year-end. The S&P 500 posted a 2.3% gain in the second quarter and 12.6% for the first half of the year.

	6/28/13 Close	3/28/13 Close	Change	Gain/Loss
DJIA	14,909.60	14,578.54	+331.06	+2.20%
NASDAQ	3,403.25	3,267.52	+135.73	+3.99%
S&P 500	1,606.28	1,569.19	+37.09	+2.31%

 

And while these numbers are certainly good for investor portfolios, reaction to the Fed’s comments sent all three indices down roughly 1% in June and, more importantly, may have lasting effects not only in the equity market, but the bond market as well.

 The 10-year Treasury yield rose sharply from 1.6% in late May to as high as 2.65% in late June. Investors pulled an estimated $80 billion from bond funds in anticipation of the negative impact of rising interest rates. Even the commodities market took a tumble, as gold prices dropped 13% in the last month.

 Nevertheless, favorable economic data is likely coming during the first week of July, especially in manufacturing activity and construction spending. And while this combined with another expected drop in the unemployment numbers may gin up further concern about the Fed’s intentions, some market observers, like Raymond James Chief Economist Scott Brown, feel that investors and the markets are overreacting to Bernanke’s comments.

 “Bernanke said if growth picks up, unemployment declines and inflation moves gradually back to the 2% target, then the Fed would likely step down the pace of asset purchases later this year. He is not espousing a more restrictive monetary policy, just taking the foot off the stimulus spending pedal,” said Brown.

Despite the volatility of the last month, the second quarter of 2013 did finish in positive territory, extending the double-digit gains of the domestic equities market for the first half of the year. Still, when the markets exhibit this kind of unpredictability, it can be concerning and may warrant a discussion to check in on your portfolio and ensure it’s still aligned with your longer-term goals.      

Please feel free to reach out to our team if you have any questions about the financial markets and how they may impact your long-term financial plan.  We  look forward to speaking with you.