In the second quarter of 2013 stocks continued to rally and bond prices retreated. Our stocks performed better than the almost 3% return for the major market indices. In May the equity market leadership began shifting from defensive stocks to more cyclical names, which have a high representation in our portfolios (an expectation that we touched on in our March letter)
The month of June saw a 6% correction in the stock market and a 100 basis point move up in the 10- year Treasury interest rate. Investors have suddenly become quite familiar with the term “tapering.” This refers to the process of the Federal Reserve taking their foot off of the accelerator and preparing to eventually become less aggressive in the purchase of bonds in the open market. (In other words, printing less money.)
Chairman Bernanke’s comments on the matter initially spooked markets causing the June swoon but just a week ago his soothing comments calmed investor nerves and the stock market bounced back to hit a new record high. He stated, “You can only conclude that highly accommodative policy for the foreseeable future is what is needed for the U.S. economy.” Thus, when the Fed does taper, it will be an acknowledgement that the economy is on a self-sustaining upward path and creating more jobs.