Second Quarter 2010 Recap
Guess what came back in the second quarter? That long lost feeling called volatility which seems to come and go when we least expect it and many investors hated the feeling of uneasiness that it brought in May and June. Now we are on track for July’s performance to be the best month in more than a year. This is why long-term investors can’t get caught up in the short-term noise of the stock market and sell out because they are fearful the economy may slide back into recession and deflation. Investors are still traumatized by the substantial losses they suffered during the Great Recession of 2008, and this recent pullback has played with investors’ rational logic.
I have been and still am in the camp that feels we will not experience a double-dip recession and there is room for this market to continue rallying which is why we didn’t react to the mini-correction in May and June. Although I will be watching closely any developments that happen around the world, I can’t guarantee that we will see any unexpected events that will affect the markets. Our portfolios are structured with some great holdings, because of this diversification, we were able to outperform the markets in 2009 and again so far in 2010.
The hardest part of building a portfolio now is with fixed income. Money Market Funds pay almost nothing, CD’s pay less than 1%, the yield on a 2 Year Treasury is almost 0.55% and less than 3% for a 10 Year Treasury, so it doesn’t make sense to lock into long term bonds for very little yield. What we have been adding to the portfolios are some dividend paying blue chips that are yielding approximately 3 ½%, preferred stock ETF yielding a little over 8% and a high yield corporate bond fund yielding approximately 12%. These investments come with risk, but I feel that stocks look more attractive now than bonds.
For the second quarter (April – June) the Dow Jones Industrial Average and S&P 500 Index lost -9.97% and -11.43% respectively. YTD thru June 30 the averages were down between 6 and 8%, but as of today the markets have rallied back in July and range from flat to +1% ytd as of July 27rd. What a difference a month can make and why investors shouldn’t try and time the markets.
Looking ahead, we will finish out Second Quarter earnings season and then all eyes will be focused on July’s Job Report on August 6th. As good as earnings have been, what this economy needs more than ever are jobs, jobs and more jobs. Since January, the trend has been positive for new jobs but May and June’s numbers were weaker than economists had expected which helped fuel the fire on Wall Street. Once jobs come roaring back, I believe you will see this market charge ahead as well, and if not my views may become more cautious.