Blame It On The Weather
The jury has returned and the verdict appears unanimous – the weakness in growth over the winter was primarily due to unusually bad weather.
Last quarter we wrote that both we and the Fed were moving forward on that basis, but many were discomfited by signs of weakness. As it turned out, even a 2.9% contraction in GDP in the first quarter was brushed aside by investors amidst signs that it was temporary and the next few quarters will see an offsetting rebound.Download PDF
Rising Stock Prices, Interesting Earnings And Fidgety Investors
After a first quarter of modest but solid positive returns (broad market), large U.S. stocks actually improved in the second quarter and delivered performance that we view as stronger than what investors should expect over the next 10-20 years (albeit far below the 30+% of 2013, an outlier event).
That said, the very attractive “valuation cushion” of the last five years is gone, and large-cap stocks are, broadly speaking, fairly priced to current conditions. We continue to see small-cap stocks as expensive.Download PDF
Fixed Income Portfolios
Bonds Performing Well This Year, For Now
Fixed income has enjoyed good returns in the first half of the year. U.S. treasuries, along with other developed-market government bonds, appeared to benefit from Fed Chair Janet Yellen’s further policy clarifications and from safe haven flows in response to the escalations in Ukraine and Iraq. Investment-grade, high-yield, municipal bonds and emerging-market sovereign bonds all have done well so far this year. Over the long term, we expect U.S. treasury yields to edge up, which could trigger losses in value. And, eventually, spreads between corporate bonds and treasuries should begin to gradually widen as the interest rate tightening cycle continues to grind forward.Download PDF