Stocks and bonds continued to move higher through this year’s second quarter, albeit in more modest fashion than what we had seen to start the year. Solid economic data coupled with strong earnings and a lack of any significant “negative” news paved the way for this advance. In general, we’d say that global markets are right on script, having written the following in our most recent newsletters:
“Consumer spending drives the economy and personal incomes are on the rise; millions more are employed now than in recent years, wages are growing, as are housing prices, and modest gas prices are a big help. It’s no wonder consumer confidence is at its highest level in 14 years. A confident consumer is a spending consumer, and we have reason to believe this will propel earnings and stocks higher over the next couple of years. This is the most important part of the story – we are moving from what has been an interest-rate driven bull market to an earnings-driven one, a much healthier form of growth.”
We repeat this summation because we believe this is, and will continue to be, the market’s most important underlying theme as we move forward. There will be other storylines for sure, including times when this upward-moving trend looks to be broken, but look for these periods to be fairly short-lived before the market returns to form.
Speaking of trends, earnings grew 15% in the most recently-completed quarter, the fastest pace of earnings growth in the last six years. Our equity-based investments have performed very well against this backdrop. And our buffered note positions have been outstanding. The international side of the portfolio has been particularly strong and is worth noting as well. Look for continued out-performance on the international side of the portfolio over the next few years, which we discuss in more detail in our Global Pendulum post.
U.S. bonds are moving in anemic fashion, just as expected, with the BARCAP bond index up less than 0.25% over the last year. Ouch! Fortunately, our bond-based buffered notes and international bond positions have really propelled the bond side of our portfolios higher. In fact, our bond-based portfolio delivered its largest margin of out-performance versus the benchmark in our firm’s history. Look for us to continue this approach over the next few years, as we’ll need to stay creative to keep this portion of the portfolio moving forward.
Steve King is the Vice President at Wealthquest – a Cincinnati based financial planning and wealth management firm that offers a full range of financial services under one roof, for one simple fee.
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