In 2013, we saw a wide range of investment returns across the financial markets. While U.S. stocks soared, international stock markets were mixed. Many bond investments last year were down modestly, though our Pacific Wealth Management portfolios enjoyed positive returns from some of our multi-sector bond funds. However, negative performance in commodity and precious metals did adversely affect portfolio returns.
After the extraordinary stock market returns of 2013, the financial markets are behaving a bit more nervously this year. The outsized stock gains last year were the direct result of our U.S. Federal Reserve Bank’s indefinite Zero Interest Rate Policy, despite an American economy that grew at a tepid 1.9%** pace. In January, the “Feds” finally began to reduce their controversial monthly U.S. Government Bond purchases, in which our stock market’s appreciation had become so dependent. This third round of bond market manipulation began in September, 2012 with $85 Billion/month of bond buying and continued through December of last year. It is not surprising the markets are experiencing some digestion challenges as the “Feds” are paring back the amount of monthly purchases to $75 Billion in January, $65 Billion in February, and $55 Billion in March. Ben Bernanke’s successor, Janet Yellen, has indicated she intends to continue these reductions in bond buying and have them completely eliminated before year end.
Although Vladimir Putin’s exploits in Crimea/Ukraine may have some long term consequences, particularly for Europe, the near term economic implications for the global economy appear minimal at this time. It does not look like the “West” has the political will to do much about it, as Europe’s economies remain very reliant on Russia for a large percentage of their energy needs.
Pacific Wealth Management investment portfolios remain conservatively invested with lower than average stock market allocations to reduce risk. We are optimistic our strategic diversification will effectively weather today’s choppy markets. The roller coaster ride we have experienced in the financial markets over the first few months of 2014 are likely to continue throughout most of the year. If the U. S. economy stumbles, our central bank appears willing to return to the bond buying table and continue the “easy money” policies they have embraced over the last 5 years.
We are looking forward to our upcoming annual client dinner on April 29th at the San Diego Air and Space Museum. This year’s event will be special, as we dine alongside and celebrate one of the finest collections of aviation and space history in the world.
**Source: The Conference Board http://www.conference-board.org/data/usforecast.cfm