As you may have read, the first quarter of 2013 was the best first quarter market performance for stocks since 1998, with returns approaching 11%. Some of the issues we discussed in our last letter were ameliorated and investors became more concerned that “there is nowhere else to go” except risk assets, specifically US stocks. Our results for the quarter were approximately 1% less than the market due to a rotation towards defensive stocks including staples, healthcare, and utilities, all of which are under-represented in our portfolios.
Earnings results, Federal Reserve policy, and a potential pick up in the economy are all considerations that investors will be analyzing and weighing over the next several weeks. We continue to be sanguine on the prospects for an accelerating economy, spurred by housing, energy and manufacturing. Therefore, we believe earnings will not disappoint, and stocks will continue to rise in the context of what appear to be “fair” valuations. As anticipated, money appears to be coming out of savings and flowing into stocks, but not yet out of fixed income. When the bond bubble inevitably bursts, those investment dollars should provide further support to stocks.