July 6, 2012
These past six months have been an exasperating experience for both investors and advisors. During the first three months of 2012 the market experienced impressive gains and then the second quarter produced a drawdown leaving the averages in a barely positive area. The most surprising event was interest rates falling to historical lows especially the 10 year note at 1.45% on the June 1. But the confusing part of this rate decline is that someone was still buying at these levels.
The markets are still range bound with the valuations hovering around 12 P/E. This is very low compared to the historical average over the last 50 years of 15%. What we are experiencing is a buyers strike based on unknowns. Taxes, politics, and European confusion coupled with the overhang of tepid employment is keeping individuals out of the equity markets and fleeing to “safety” buying fixed income.
Most of our accounts are flat or have modest gains based on being defensive in our models. We have both opportunities and challenges ahead in the next six months which will require staying disciplined and turning a deaf ear to the noise produced by the talking heads. The main thing to remember is this too shall pass. Once the pain of low rates starts affecting the pocket books of Main Street, and some of the clouds of unknown clear, equities will attract dollars while fixed income will experience historical outflows.
We will be making contact with each one of you either by email or phone to review your current allocations and explore any changes that need to be applied for the next six months.
Bill and the Partners of Riley Wealth Mgt.