Rain and a Market Meltdown

I hope your July 4th weekend was enjoyable.  With it raining most days here in Seattle, I mean Atlanta, my wife and I had to get creative over the holiday weekend to keep our boys (and us as well) sane.  Twice we ended up putting on old clothes/rain gear and went on hikes as well as blackberry picking.  It was something different and we had a great time.

Ever since Fed Chairman Ben Bernanke began warning in mid-May that the Fed was working on a plan to taper their bond-buying program volatility has ramped up in the market and significant losses have occurred in a majority of asset classes.

If you look at the graphic below it is clear that recently there have not been many places to hide.  In fact, it is hard to remember a time when US Treasuries, Gold, US Stocks and Commodities have all sold off at the same time.The good news is that the sell off provided opportunities is several asset classes as the baby was once again thrown out with the bathwater. Higher volatility in the summertime  is nothing new and using that volatility to identify attractive investments is always the objective.

Description Symbol 1 Week 4 Weeks 13 Weeks 26 Weeks
US Stocks VTI -4.45% -4.9% 1.12% 11.08%
International Developed Stks EFA -5.98% 7.19% -2.71% 1.19%
Treasury Bills SHV -0.01% 0.0% 0.01% 0.01%
US High Yield Bonds JNK -4.02% -5.71% -4.19% -1.91%
Mortgage Back Bonds MBB -2.17% -2.72% -3.28% -3.16%
International REITs RWX -7.01% 11.25% -9.97% -6.55%
US Equity REITs VNQ -6.68% -11.99% -5.58% 0.88%
Total US Bonds BND -2.45% -3.36% -3.32% -3.55%
Commodities DBC -3.95% -2.99% -6.84% -7.69%
US Credit Bonds CFT -3.42% -5.21% -4.69% -5.01%
Intermediate Treasuries IEF -3.15% -4.23% -4.48% -4.59%
International Treasury Bonds BWX -4.98% -2.49% -3.72% -7.54%
Municipal Bonds MUB -5.29% -8.23% -7.16% -7.38%
Emerging Market Stks VWO -8.91% -14.79% -13.59% -15.65%
Emerging Mkt Bonds PCY -9.1% -12.91% -12.06% -15.7%
Gold GLD -7.36% -7.35% -20.17% -22.84%
Frontier Market Stks FRN -7.15% -12.86% -19.47% -22.7%

Source: Myplaniq.com     As of 6-24-2013

U.S. stocks have been the standout this year as Gold, Silver, Commodities, China, Brazil, Emerging Market Stocks & Bonds, Treasury Inflation-Protected Bonds, Long-Term Treasuries and Investment Grade Corporate Bonds have all suffered losses ranging from 2% – 37%.

Throughout this year we have continued to closely monitor the outlook for U.S. stocks. One of the indicators that we pay close attention to is the Cumulative Advance/Decline Line for the S&P 500.  When this line is trending higher it tells us that the stock market is being driven higher by a larger number of stocks, and thus is more sustainable. Typically as a longer-term rally nears its end the Advance/Decline line begins to break down as fewer and fewer stocks have the strength to move higher.

In the chart below the S&P 500 is rebounding from the recent 6.5% pullback while the Advance/Decline Line is hitting a new high.  This is a positive sign for stocks and is one of the important indicators we will keep an eye on.

breadth

On a personal note, I hope your July 4th weekend was enjoyable.  With it raining most days here in Seattle, I mean Atlanta, my wife and I had to get creative over the holiday weekend to keep our boys (and us as well) sane.  Twice we ended up putting on old clothes/rain gear and went on hikes as well as blackberry picking.  It was something different and we had a great time.