Many Wall Street equity analysts were preparing investors for possible disappointment, but only the bears have been discouraged. For the second quarter 2013, 73% of the companies reported earnings above the mean estimate and 54% beat the revenue mean estimate. If the current 1.8% second quarter earnings growth rate holds, it will be the third consecutive quarter of positive growth. Corporate earnings are keeping pace with higher stock prices and on a 12-month forward looking basis the S&P 500 is expected to earning $117.00. With the S&P 500 index nearing 1,700, the current price earnings ratio is fairly valued at 14.5 times.

Since the earnings slowdown did not come to fruition, stock prices continued their assault into new record high territory. Once again, the U.S. equity markets led the way with the NASDAQ Composite grabbing top honors with a 6.63 percent monthly return. The S&P 500, the Dow Jones Industrial Average and the MSCI EAFE index also had a solid July and very impressive twelve month numbers. Emerging markets and commodities continue to disappoint investors. For those diversified portfolios hurt by exposure to these sectors, stay patient as these sectors will once again have their day in the sun.

Our advice related to stocks is to stay the course and remain diversified. While stocks continue to explore new record high levels, their current valuations are justified by historical standards. Remember the main role of stocks in your portfolio is to provide for long-term growth and build wealth. They have been doing exactly that for the past four years.

As you already know, bond markets sold off in May and June as the Federal Reserve hinted at ending their accommodative policies. Federal Reserve chairman Ben Bernanke comments related to “tapering” acted like reset button for interest rates in the bond market. In the blink of an eye, the yield on the 10-year U.S. Treasury Note rose from 1.70% to 2.70%. In July, interest rates were less volatile as a 2.60% 10-year Treasury yield became the new fulcrum point. While the interest rate rise caused a painful decline in bond prices, it also has given the bond market a more attractive valuation on a forward looking basis.

Remember the long-term role of bonds in your portfolio. Over time, bonds provide for capital preservation, income, stability and low correlations to equity returns; important components for successful long-term portfolio strategies. Resist the temptation to change your long-term portfolio strategy because of short-term price movements.

June reminds us, this is not the way the world works. Every major market index posted negative returns for the month as global and domestic events were absorbed by the stock, bond and commodity markets.

Here at home, the Federal Reserve introduced us to the concept of tapering. Chairman Bernanke said the Fed would begin tapering bond purchases later this year, if the economic data continues to improve. While he stressed several times that “policy is not pre-determined”, the market heard the Fed will be removing the economic training wheels and the market began to tip. The FOMC said they will continue to buy $85 billion in U.S. Treasury and mortgage-backed bonds each month, but at some point in the future the market will need to ride under its own power.

Global economies are struggling too. An economic slowdown in China, political unrest in Brazil, protests in Egypt, record central bank stimulus in Japan and a sluggish European Union depressed values in most international markets. All of these factors coupled with a strong U.S. dollar hurt both international stocks and bonds.

For those investors who thought gold was the single best answer in a world of uncertainty, think again. The precious metal fell 14.68 percent in June alone and has declined over 23 percent in the last year.

Despite the recent pullback in stock prices, the outlook is still positive in our view. The next round of quarterly corporate earnings reports will dictate the market’s near term direction. At the present time, we view stocks as fairly valued on a historical price earnings ratio. Corporate earnings need to keep pace justifying the current valuations. If they do, stock prices will rise from here, if they disappoint a June repeat is a distinct possibility.

For the past year we have been telling anyone who will listen to lower your expectation for bond returns. Five and six percent annual returns in the bond market of the past five, ten and fifteen years cannot mathematically continue. At the beginning of the year we said a one to three percent “earn the coupon” year will be a good one for bonds. After the first six months of 2013, if the bond market manages to avoid its first negative return year since 1994, it will be a good year. While the interest rate rise is real and bond prices are lower, bonds on a forward looking basis are more attractive today than they were four weeks ago.

This saying evolved from the stock market’s tendency to perform better during the November to April time period and underperform during the May to October time frame. While Nevada Retirement Planners strongly opposes strategies aimed at timing the market, it is still interesting to monitor these historical trends. This May did not follow the old adage; rather it was a continuation of the bull market leading up to this month. While this particular bull market has many skeptics and non-believers, the numbers tell the real story as the S&P 500 and the Dow Jones Industrial Average reached all-time highs during the month.

The rise in equity prices has been a global event, but U.S. stocks led the charge in May. The outperformance of the U.S. markets has been fueled by a variety of factors. The financial crisis in the U.S. is approaching its five year anniversary while the banking and sovereign problems is Europe are more recent events. The U.S. Federal Reserve implemented multiple quantitative easing programs to pump enormous liquidity into the financial system. These aggressive moves have been well received by the stock market. The U.S. consumer, after significant personal deleveraging, is now more confident and beginning to drive economic growth in housing and retail sales. The fundamentals of U.S. businesses are also very positive with solid corporate earnings supporting current stock valuations. The U.S. economy is on better footing relative to many other countries.

Interest rates quickly pierced into a new trading range causing price deterioration. This was most notable in the U.S. Treasury market and especially in longer maturities as interest rates rose as the yield curve steepened. The credit sectors (mortgage-backed securities, investment grade corporate bonds and high yield) outperformed Treasuries as credit spreads continued to compress. Despite the spread tightening, returns were still negative for the month. High yield bonds are now yielding less than five percent, an amazing historical low level with high yields down over ten percent in the past five years. The party in bonds is winding down. Expect low single digit returns over the next twelve months.

The market’s performance provides some insight, but the most important question is how should your portfolio be positioned in today’s market? Your combined portfolios and investment strategies should be reflective of your personal financial goals, risk tolerances and objectives; not the perceived state of the financial markets. If your time horizon is five years or longer, equities will provide for long-term growth and wealth accumulation. Bonds provide for shorter term financial needs and can control a portfolios overall volatility. Whether stock prices are moving higher or lower and interest rates are increasing or decreasing; the best answer for your portfolio is one that is diversified and properly allocated among the key asset classes. If you have a financial plan and your portfolio reflects your risk tolerance and goals; you are well positioned in today’s market.