The ongoing impasse over the federal debt ceiling—and the implications of a potential downgrade in the nation’s credit rating—have prompted many questions from investors. American’s are justifiably concerned, angry and outraged by the leadership and posturing of our governing bodies. While painful to watch, and possibly detrimental to the short term market stability, this discourse is actually a good thing. As a country we need to address our fiscal irresponsibility, and if need be, force our leaders to make the hard decisions, and not tow the party line. In this tenuous time we must not lose sight of the fundamentals and investment realities of today.
It is often said that bull markets climb a wall of worry. This year investors have a host of things to be concerned about including meager economic growth in the developed world, lack of domestic job growth, intensifying sovereign debt fears in Europe, and rising inflationary pressures, especially in emerging markets like India and China. These potentially worrisome issues have caused the market to continue to hover in a somewhat chaotic fashion. After following negative sentiments for much of the second quarter, global stock markets in the last week of June decided all was right with the world once again; resulting in the S&P 500 Index increasing 5.6% – the best week in nearly two years for US equity markets. After all the intra-quarter volatility the equity markets finished mostly flat with the S&P 500 up 0.1% and the International EAFE Index up a modest +1.8%. The bond markets continued to show some recovery with the Barclays Aggregate Bond Index up 2.3%.