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The Lindsey Report – June 2013


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Turbulence and volatility is the best way to characterize the equity and bond markets for the month of the June (as measured by the S&P 500 and the Morningstar Fixed Income Indexes).

Actually, things were rolling along pretty smoothly with equities at or near their highs for the year and bond prices continuing to rally until the minutes of the FOMC (Federal Open Market Committee) were released on June 19th.

On June 19th, Chairman Bernacke indicated that policy makers may begin slowing purchases under the quantitative easing this year and potentially end them in mid-2014.  This statement may have inadvertently precipitated a significant exit from both stocks and bonds.  Within a week, the S&P 500 had slid almost 5% (MSN Money) and mortgage rates had moved from upwards close to 1% (Zillow).

In my opinion, this was a classic, but typical overreaction by the markets.  Those traders trying to get out ahead of the curve, moved quickly and it had an impact.  Since the initial reaction; however, things have settled down a bit.

The irony is that the statement from the Chairman was in many cases a positive comment on the state of the economy.  Basically, he was saying that they would reduce their stimulus because they feel the economy is gaining momentum and by the end of the year could be capable of standing on its own.  I find that very encouraging!

While removing the stimulus will in all likelihood hurt some bond prices, it should be a positive signal for equities.  A strong economy should lead to increasing corporate profits, which in turn should support higher equity values.

 

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual.  To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.

Securities offered through LPL Financial, Member FINRA/SIPC.

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