The US stock market continues to dominate global equity performance. Healthcare, Industrials, and Consumer Discretionary stocks lead the pack. Technology and Utilities trailed. While globally diversified stock portfolios have lagged the S&P 500 in 2013, we continue to believe that a globally diversified equity position is critical for a properly designed portfolio. Despite the fact that the end of December has historically been a good period for US stocks, the torrid pace so far this year leads us to believe that it is more likely that the year will end quietly for the domestic stock market.
Generally speaking, earnings are rising and the economy is getting better, and that’s a positive backdrop as we enter 2014. However, the market is now up almost 50 percent in 18 months with not so much as a 10 percent correction. It’s basically been a straight shot up. As a practical matter, investors should be prepared to weather a 10 – 15 percent correction in 2014.
This year has been difficult for the domestic bond market and 2014 will likely deliver more of the same. Interest rates have slowly crept up. The 10 year treasury has gained nearly a full percentage point so far this year. We anticipate that interest rates will continue to rise.
Despite the fact that we are not particularly excited about the outlook for the bond market, investors must remember that there’s a place for fixed income in a properly diversified portfolio. Bond positions can continue to mitigate risk even if they do not contribute much to portfolio return. We remain focused on short duration, maturity date specific bond etf’s in anticipation of higher rates to come.