What’s Been Happening?
Springing off of the doom and gloom of an unpopular war that ended sooner than expected, the stock markets of the world soared without pause in the past three months. Once again, financial markets “surprised” the forecasters, this time to the upside for a change. International markets made some of the biggest gains along with small company stocks as the riskier asset classes provided the highest returns. Bonds gained only modestly for the quarter and actually declined in June as interest rates moved up slightly.
Trends to be Aware of
The stock market recovery has been led by some of the riskiest sectors, such as biotech and semi conductors, while bonds have begun to falter. Both represent extreme risks at this point. Interest rates are at 40 year lows – rising rates from here would hurt long term bonds that have heretofore provided safe haven. Biotechs still have no profits and semi conductors are yet to be sure they have sufficient customer demand to return to the kind of profitability their prices suggest.
Money market yields are at record low levels, around .5%, which will make bonds and stocks relatively attractive. After a long hiatus, emerging markets are showing strong returns and still represent good opportunity both for their return potential as well as their diversification benefits. Emerging markets have low correlations with US markets.
What To Expect From Here –
The third year of a presidential cycle is typically the best three of four. Maybe it’s only coincidence, but of the $171 Billion that consumers will receive in accelerated tax cuts over the next ten years, over half will be delivered before the end of 2004. This is a powerful amount of economic stimulus that will go along way toward keeping consumers spending, even after the refinancing boom calms down.
Some Numbers for Comparison:
The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 6/30/03.
|
Index |
What it Measures |
Last 3 Mos. |
Last 12 Months |
3 Years, Annlzd |
5 Years, Annlzd |
|
Standard & Poors 500 |
U S Stocks w/div |
15.40% |
0.25% |
-11.20% |
-1.61% |
|
Russell 2000 |
Small Stocks |
23.42% |
-1.63% |
-3.3% |
0.97% |
|
Morgan Stanley EAFE |
Foreign Stocks |
19.57% |
-6.06% |
-13.20% |
-3.68% |
|
Thompson Financial Tech/Comm. Funds |
Technology Funds |
22.99% |
6.23% |
-34.22% |
-4.43% |
|
Real Estate Inv Trusts |
Real Estate |
13.12% |
3.99% |
14.57% |
7.12% |
|
Lehman Bros. Ag Bond |
Bonds |
1.39% |
10.40% |
10.08% |
7.54% |
|
CPI |
Inflation |
0.00% |
2.00% |
2.10% |
2.40% |
Source: Thompson Financial
