Is a positive track developing? 2nd Q positive

We just reported the first view of the 2nd Quarter GDP and it was a good one, 4% growth. This is good news! The final revisions on the 1st quarter showed a final -2.9%, so this is certainly a bounce back. There will be two more revisions, most likely, and we will see what those revisions say, but this is certainly positive. Weather has been blamed as a primary reason for the difficult 1st quarter, but a 4% recovery is very nice. Additionally the jobs report for June was very positive, adding over 200,000 new jobs. We haven’t seen that positive of a jobs report in quite a while and it certainly feels like we are moving back in a positive direction. The recent jobless claims dropped unexpectedly to their lowest level in more than eight years. Consumer spending has been a bit weak, yet the economy feels better. There is a feeling of positive optimism in the air despite 4-5 months of seesawing markets, stocks are right near new highs again.

We will watch closely to see if other recent economic numbers continue to display the positive trends and hope the trends hold. The stock market has always been considered, over the years, as a leading indicator and often proceeds economic recoveries. It is possible here that the stock market is signaling a new phase of growth in the economy. The good second quarter and recovery from the first quarter, could be signaling this new phase of growth. We will watch the evidence and the reports and see what the facts bring!

The Growth Debate

There is always a raging debate on the best way to stimulate the economy and develop economic growth, once the economy slows down. There are hard opinions on both sides, with clear examples that both, the Government Spending and Business Investment crowds can point to that lead to economic growth. Many argue that the massive war spending by the FDR administration in the 1940’s on World War II got us out of the depression. On the other hand there are examples of companies hiring in the 1980’s due to tax cuts and business incentives created by the Reagan Administration, which lead to a strong era of growth in the 1980’s and continued partly in the 1990’s. Recently we have had massive stimulus from our government, along with the Federal Reserve dropping interest rates to all-time lows and the quantitative easing caused by the central bank. While these extraordinary measures haven’t produced big growth yet and the quantitative easing is being unwound, we appear to be seeing a new growth phase in the economy. Maybe it’s the long term effect of the quantitative easing, maybe it’s the fact that the easing is ending. That is why economics is sometimes referred to as the dismal science. Let’s hope it holds!

US Markets Positive

Having just finished the first half of 2014 we generally saw higher markets with a period of seesawing but still to the positive side. The markets in summer are known for doldrums, but more often than not the markets rise in the summer despite the doldrums talk. US Stocks continue to show the strength that make them rank first among asset classes. Investors willing to take some risk should own US stocks while the US stocks are in this position. It’s always prudent to manage risk and manage positions, but while a certain investment group is leading, in this case US stocks, those who can take risk could be nicely rewarded.

Other Asset Classes

International Stocks have been acting better in recent months and rank second to US stocks as a category for investors. International stocks still have a relatively cheaper valuation than the US stocks, but also carry a higher risk due to the added issue of currency risk. Emerging markets and Frontier markets are still the cheapest now, as money flows have been favoring developed International markets for now, but have recently turned to see emerging markets show some strength. Emerging markets rely on developed economies to sell their goods into. So a pickup in growth for the developed economies, US and Europe, could accelerate the emerging markets and possibly their stocks. This is perhaps what the recent shift towards emerging names is signaling here.

Commodities in general have been lagging, but recently oil based commodities have been acting better. Industrial metals have also been on the rise, while gold and precious metals continued to simply track time in the first half. Again, in this segment the general commodity list needs at least a decent economy to spur demand for these commodity goods, which are priced purely on supply and demand.

Bond Investors have seen the interest rates fade as bond prices did better in the first half than many expected. As the economy improves, interest rates should rise and make it difficult to make or preserve wealth in only fixed bonds. One well regarded valuation source shows an expected return from most bond categories as flat to slightly negative for the next 5-7 years. Floating Rate bonds are one idea as well as low risk Arbitrage and gas pipelines for income to capture low single digit returns without taking direct bond risks. Investors who can be in these alternative categories might be able to generate positive returns from their Wealth Preservation assets, which traditionally were mostly bonds and other debt instruments. Individual bonds remain a core part of the portfolio and these alternative ideas are more of a satellite idea. These alternative areas of Wealth Preservation do carry different risks to consider before investing, of course.

PLANNING FOR INVESTORS IS THE KEY 

Investors should be mindful of their goals and plans and keep tracking those as they evaluate their investing program. At FourStar Wealth Advisors, we are committed to making sure investors have a plan and are comfortable with their plan. We will give clients access to their plans on-line and offer new reports to help folks evaluate their on-going plans. We will be talking more about those ideas as the summer progresses.

Stop by!

We are now in our new space at 351 W. Hubbard and it feels good! The office is a real nice client meeting space and we welcome our investors and friends to stop by our building, which is right next to the East Bank Club in Chicago and behind the Merchandise Mart. We hope to be scheduling an open house party for all our clients and friends to introduce the space. In the meantime feel free to stop by anytime and meet our team, Chris Reardon and Judy Oliveros. They are the support team to help with all our client’s service and planning needs. Please give them a call if you have any issues to discuss in service and planning.

Family is key

Our sons are both home now and we have a full house, which makes summer a fun time. Our oldest, Evan, graduated in May from The University of Michigan. He is now employed, enjoying it and going in the right direction. Our youngest, Quinn, goes back to The University of Miami in Florida in August, meanwhile he is working for a ticket broker in Chicago. Cherish those great times with our children as this is what all the planning and investing is about.

Download: Second Half Outlook 2014 PDF