Market Temperature

Two steps forward …One step back

The U.S. and many world market indices were looking at modest gains until they ran headlong into the month of June, when a variety of concerns came together to drive prices lower pretty much everywhere in the world. The media continued to strike fear in the hearts of investors, with headline news every time the markets had a bad day. How did you feel on those days? Here is what the quarter really did:

Total trading Days


Up days


Down days






















In the end the S&P only lost 11.7 points for the quarter. As investment advisors, we hear the concerns of investors on a daily basis and can tell you that down days far outweigh up days when it comes to investor emotions. Keeping a cool head and avoiding the drama that the media uses to sell its wares is very important.

Winners & Losers

The Wilshire U.S. Large Cap index was down 0.90% for the second quarter but was up 4.95% for the first half of 2011.  The S&P 500 fell 0.39% for the quarter, but is up 5.01% so far this year. The Wilshire U.S. Small Cap index declined 2.01% during the second quarter; but is up 6.31% for the year. Among the sectors, the biggest losers were financial services companies (down an aggregate 6.27% for the second quarter of 2011) and energy stocks (down 5.07%). Publicly-traded health care companies were up an aggregate 7.29% and utilities rose 5.01%.

Looking abroad, the MSCI EAFE index, which tracks a basket of developed-economy indices, was up 0.33% for the second quarter, up 3.00% for the year so far. There are always lessons in the returns; the MSCI Europe index was up 0.78% for the quarter, and is up 6.71% in the first half of the year, when many analysts were betting on a decline due to the widely-publicized debt woes in Greece, and less dire sovereign debt issues in Ireland, Portugal and Spain. The EAFE Emerging Markets Index, which measures the overall performance of less-developed nations, was down 2.11% for the second quarter, down 0.45% for the first half of the year.

In real estate, the Wilshire REIT index rose 3.64% for the second quarter of 2011, and is now up 10.62% for the year. Commodities prices were almost unanimously down for the second quarter, led by energy (down 7.94%), agriculture (down 12.09%), livestock (down 9.80%), aluminum and nickel (down 5.32% and 10.32% respectively). Gold was up a modest 4.29% to finish the first half of the year at a 5.42% gain.

Bond yields continue to scrape along the floor; you can get a 0.02% yield on 3-month Treasuries currently, 0.10% on 6-month government bonds, and the two-year (0.45%), three-year (0.79%) and 5-year (1.75%) are not dramatically higher. The benchmark 30-year Treasury is currently yielding 4.36% a year. The Bloomberg web site shows 1-year muni bonds yielding an average of 0.211%; if you go out to ten year maturities, you can get an average yield of 2.729%.

The Recovery

Where do we go from here? The U.S. Bureau of Economic Analysis reports that America’s economy–the gross domestic product (GDP)–rose 1.9% in the first quarter of 2011, which is significantly less robust than the 3.1% growth rate reported for the fourth quarter of 2010. If you’ve taken a trip to the gas pump, you are probably not surprised that the inflation rate reached 3.9% in the first quarter.

We are experiencing an unusual recovery from an unusual recession; in past economic downturns, the economy has come roaring back during the recovery, but today we are dealing with a more deliberate climb out of the hole. A quarterly survey by the Associated Press suggests that the U.S. economic recovery will be slow and deep, held back by shoppers reluctant to spend and employers hesitant to hire. A poll of 42 economists has concluded that economic growth will probably stay below 3% for the rest of this year and early next year, and their crystal balls say that the U.S. unemployment rate will end the year about where it is now: between 9.0% and 9.5%. GDP growth would have to reach 5% for a full year to drive the unemployment rate down by one percentage point; 125,000 jobs must be added each month just to keep up with population growth. In May, the latest month where we have statistics, 54,000 net jobs were added, down from 194,000 in March and 232,000 in April.

 None of this is necessarily bad news for investors, who would prefer the recovery to continue, slow or otherwise. But the rocky month of June, which started with six straight days of losses in the U.S. markets, is further evidence that even positive growth and positive returns don’t guarantee a smooth ride. The returns of the first half of the year have come with a certain share of anxiety, but it may be helpful to remember that the great returns of 2009 came at a time when many investors were living in a state of fear bordering on terror. Let’s count our blessings; the mild reversal of the past three months wasn’t enough to offset the gains in the first quarter of the year for most of the elements in a diversified investment portfolio.


GDP estimates, inflation and corporate profits:

Wilshire index data:

Russell index data:

S%P index data:–p-us-l–

Nasdaq index data:

International indices:

Individual country data:  


Commodities index data:–usd—-sp——

Treasury market rates:

AP Economic predictions:–2011-Economic-Outlook–Bleak/

Labor market recovery: