Quarterly Market Update
Third Quarter 2013
Quarterly Capital Markets Review and Outlook
Pending Fed Action Dominates the Outlook for 2nd Half, 2013
There is some potential upside to growth, especially with our expectations for a stronger 2H13 as both business and consumer confidence rise. Overall we maintain our baseline scenario for 1.8% growth in 2013 with acceleration above 2.0% thereafter. Read more >
Labor Market May Normalize in Summer 2014
We project that if the current rate of jobs growth continues, we will regain all of the jobs lost during the great recession by the summer of 2014. Read more >
Red Light & Green Light – or Shades of Both
In light of the Federal Reserve’s recent announcement, the gradual end of quantitative easing is in sight. Investors’ views of such events as a red light (stop) or green light (go) is not a healthy method for investing one’s assets. Instead, such a policy shift should be viewed as a positive because it implies that economic and business conditions are of sufficient strength to be self-sustaining. Read more >
Fixed Income Outlook
Investors Flee Bonds as the Federal Reserve Looks to Taper Purchases
Should the long anticipated mass exodus by investors out of bonds intensify, interest rates will of course rise across the board, with yields on high quality bonds rising faster in the beginning as investors sell their most liquid bonds first. For the balance of 2013, we anticipate that the yield on the 10-year Treasury will fall within a trading range of 2.5% to 3.0% and that it is headed eventually for 3.25% in 2014. Read more >
As the Federal Reserve prepares to exit the accommodative monetary policy of the past five years, Chief Investment Officer John Sawyer shares his thoughts regarding changes in investor mindset and behavior since the Great Recession began. Consumers and corporations were afforded the opportunity to repair their balance sheets in a low-interest environment, and they were not irresponsible with the opportunity. To some degree government debt is also coming down and while it is difficult to say how meaningful the change actually is, there has been a correction in the spending trend. Because of these and other factors, according to Mr. Sawyer, the U.S. economy has begun the current expansion on a sounder debt/equity footing which could possibly enable a longer expansionary period. Read more >
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This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.
Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Indexes are unmanaged and investors are not able to invest directly into any index.
International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
Investments in stocks of small companies involve additional risks. Smaller companies typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, smaller-company stocks have experienced a greater degree of market volatility than the overall market average.
Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity.
In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
The investor should note that vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest risk. An issuer may default on payment of the principal or interest of a bond. Bond values will decline as interest rates rise. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply.
The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility.
Investments in real estate have various risks including possible lack of liquidity and devaluation based on adverse economic and regulatory changes.
Other Sources: Bloomberg; California.gov; Russell.com; First page index returns are calculated on a total return basis using the following indexes: S&P 500 (SPX), MSCI World (MXWO), MSCI Emerging Markets (MXEF), Bloomberg 7-10 Year U.S. Treasury Index (USG4TR), Morningstar U.S. Agency Bond TR Index (MSBIUATR), Municipal Bond Buyer 40 Index (BBMIRNEW), Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).