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Second Quarter ends Strong, but Investors remain Cautious

 

F&M Investment Services - Raymond James - Clarksville, TNClarksville, TN – While the markets managed solid gains over the last three months, investors continue to measure their enthusiasm as the U.S. economy maintains a less-than-robust growth trend heading into the second half of the year.

After a hesitant start to 2014, the markets gained momentum as the winter doldrums gave way to slow spring growth. But ever-present concerns over the Fed’s imminent move to wind down its quantitative easing program and eventually raise rates again have kept stock market euphoria at bay.

Frazier Allen

Frazier Allen

For the quarter, investors saw the S&P 500 rise almost 5%, the Dow rebound from a 1% drop in Q1 to register more than 2% growth, and the Nasdaq gain 5%.

In fact, the S&P reached record levels in late June and the Nasdaq rose to a 14-year high.

Equities around the world followed suit, recording a fifth straight monthly advance, the longest such streak since 2007.

3/31/14 Close 6/30/14 Close Change Gain/Loss
DJIA 16,457.66 16,826.60 368.94 2.2%
NASDAQ 4,198.99 4,408.18 209.19 5.0%
S&P 500 1,872.34 1,960.23 87.89 4.7%

 

*Performance reflects price returns as of June 30th, 2014.

Positive economic reports, including the Consumer Confidence Index (85.2, up from 82.2 in May), new home sales (504,000 actual vs. 440,000 estimated) and a 6.1% jump in existing home sales, buoyed the market at the end of the quarter. Still, it seems the markets remain cautious to the idea that the slow pace of U.S. economic growth may lead to inflation, prompting the Fed to raise rates.

Plus world events still weigh on investor psyche. The militant group ISIS continues its surge into Iraq; the ongoing crisis in Ukraine has been rekindled as Russia threatens to cut off gas supplies; and the muted recovery of Europe’s economy has prompted the European Central Bank to effectively charge banks for storing their cash instead of lending it out.

Foreign markets have been mixed, to say the least – the Chinese Hang Seng and Japanese Nikkei 225 are negative for the year, while the Mumbai Sensex is up a whopping 20%. And while these global influences do tend to impact U.S. markets, domestic investors are more focused on the anticipated monthly jobs data and weekly jobless claims, both of which come out on Thursday.

“From the beginning of this year, the main risk to the economic outlook was not that we’d fall into a recession. Rather, it was that we’d end up with more of the same,” says Scott Brown, chief economist at Raymond James. “For the stock market, that may not be bad. The economy continues to recover, but not so much that the Fed removes the punchbowl.”

I’ll continue to monitor developments from the Fed and the latest economic data, as well as any news of the domestic and emerging markets. And, I’ll be sure to share any trends that could affect your long-term financial plan.

In the meantime, please feel free to reach out to me with any questions. I look forward to hearing from you.


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