Bulls and Bears

July kicked off a new round of quarterly corporate earnings. Strong corporate earnings have been one of the bulls leading players, but this month some defected to the bearish camp with reported numbers below market expectation. Most notable was Apple Computer who disappointed analyst expectations for the first time in over three years. The bulls are leaning on attractive stock valuations, high stock dividend yields relative to bond yields, improving consumer confidence and a majority of companies reporting strong earnings. Do not underestimate these bullish forces.

Stocks were mixed for the month but closed near their highs for the past year. The S&P 500 gained 1.39 percent in July and is up an impressive 11.01 percent this year. International stocks, as measured by the MSCI EAFE Index, kept pace for the month returning 1.13 percent. Year to date, this index is up 4.13 percent. Below is a look at the ride in the S&P 500 over the past twelve months. If you stayed the course, this index returned 9.13 percent.

Bonds continue to rally as the global demand for safe assets has driven interest rates to historic lows. The major move in bond prices occurred over the one-year time period since the U.S. Government debt lost its triple-A rating from Standard and Poor’s. The U.S. aggregate bond market, as measured by Barclays, turned in a stellar month up 1.38 percent and the year to date period is up a solid 7.25 percent. High yield corporate bonds performed even better and long-term U.S. Treasuries were off the charts producing a monthly return of 3.30 percent and a remarkable 30.98 percent over the past twelve months. Lower interest rate mean much higher bond prices and the chart bellows shows the decline in U.S. Treasury 10-year note yields over the past year.

While it can be informative to follow the markets daily, it is imperative to elevate yourself above the daily chatter and remain focused on the bigger picture. The market noise is now delivered instantly on your cell phone, iPad, laptop, and television screen causing the average investor to gradually lose their long-term focus. Maybe it is a sign of the times, but investors are being reduced to short-term traders. A financial plan should be a long-term commitment to reach your financial goals. If properly constructed and patiently executed, it will deliver you to your destination. If you want to play the market for short-term excitement please do so, but only do it with a small portion of your nest egg. The majority of your nest egg needs time and a plan.

Posted on August 1, 2012
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