2011 Q1 Market Update

 

 State of the Markets

 

During the first quarter of 2011 global equity and bond markets wrestled with uncertainty, but managed to finish the quarter with gains across all major asset classes.

 

U.S. equities, as represented by the S&P 500 Index, advanced 5.9% for the quarter. The MSCI EAFE index of large, foreign companies gained 3.4% for the quarter, while, the Barclays Aggregate Bond Index, a representation of the entire U.S. bond market, 0.4%.

 

Our Current Wall of Worry

 

There is a saying on Wall Street: "Markets climb a wall of worry." The implication is that equity prices often move higher in the face of bad news - a situation in which we currently find ourselves.

 

The economic and political landscapes are fraught with risk:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  • Political instability in the Middle East
  • The devastating earthquake and nuclear crisis in Japan
  • Rising oil prices
  • Lingering global debt issues
  • Budget showdowns
  • Continued weakness in housing and employment

 

Yet, amidst all this uncertainty, global markets have mostly advanced, reinforcing the benefit of under-reacting to many current events. When confronted with bad news, it is tempting to give in to fear and assume an excessively conservative investment posture until "things settle down." Unfortunately, this often results in the cardinal sin of investing -- buying high and selling low. (See graphic at below.)

 

This is not to say we are complacent in the management of your portfolio, especially in the face of an unusually wide range of potential economic outcomes. We spend a good deal of time evaluating world events and their potential impact on the economy and markets, but we also recognize the limitations in reacting to those events in real time.

 

Diversification?  Yes, Please

 

Our clients' portfolios are diversified across a range of asset classes including global equities, fixed income, and alternative strategies. Given the risks depicted above, and the current potentially rich valuations of stocks and bonds, we are pleased to have our "eggs in many baskets." We are especially pleased to have the compliment of alternative strategies to provide stability to our portfolios in the face of potentially rising interest rates. We are hopeful that this three-legged stool approach will serve us well while the economy continues to recover and long-term fiscal and monetary issues are addressed.

Posted by Jay Healy at 12:50 PM
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