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Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Presented by Matthew A. Parson525 N 9th St, Cottage Grove Oregon 97424
(541) 942-7300
Second Quarter 2013Market Overview
Economic Summary: Second Quarter 2013
• Milestones– Equity markets hit-all time high (again)– Bernanke’s “tapering” comments send tremors through all markets– Germany drops austerity and embraces stimulus– Japan turns to U.S. shale gas to cut soaring fuel costs– Obama fires IRS chief over targeting conservative and some liberal groups– Apple sells $17 billion in record bond deal– Brazilian social unrest emerges– Gold falls to three-year low– Housing recovery appears strong despite rise in rates– China growth continues to decline
Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results.
Economic Themes
• Equity/fixed income• Housing• Credit and banking• Employment• Consumer behavior• Business and manufacturing activity
Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results.
S&P 500 Index and Dow Jones Industrial Average: Q2 2013
Indices are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.
Stock Price Averages: Dow Jones 30 Industrials, NYSE
Standard & Poor's 500 Stock Price Index
OCTSEPAUGJULJUN11
MAYAPRMARFEBJANDECNOVSources: Dow Jones, Wall Street Journal /Haver Analytics
13000
12500
12000
11500
11000
10500
1425
1350
1275
1200
1125
1050
Standard & Poor's 500 Stock Price Index
Stock Price Averages: Dow Jones 30 Industrials, NYSE
JUN13
MAYAPRMARFEBJANDECNOVOCTSEPAUGJULSources: Wall Street Journal, Dow Jones /Haver Analytics
1700
1600
1500
1400
1300
15500
15000
14500
14000
13500
13000
12500
r = 0.99
Q2 2013: Equity Returns by Style
Indices are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.
Value Blend Growth
Large 3.2 2.65 2.06
Mid 1.65 2.21 2.87
Small 2.47 3.08 3.74
Large Growth
Large Blend
Large Value
Mid Growth
Mid Blend
Mid Value
Small Growth
Small Blend
Small Value
14.56 14.38 14.60
17.10 16.33 15.83
20.19 19.34 18.67
3-year volatility in returns
Source: Commonwealth Asset Management/Morningstar Direct
Q2 2013: Fixed Income Returns by Style
Indices are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.
2009 2010 2011 2012 Q2
High-Yield57.51
High-Yield15.19
U.S. Treasury
9.81
Emerging Markets18.62
High-Yield–1.35
Emerging Markets28.78
Emerging Markets12.24
Corporates8.15
High-Yield15.59
Mortgage–1.92
Corporates18.68
Corporates9.00
Emerging Markets
8.02
Foreign Sovereign
13.97
US Treasury
–1.92
Foreign Sovereign
11.64
U.S. Core6.54
U.S. Core7.84
Corporates9.82
US Core–2.32
U.S. Core5.93
U.S. Treasury
5.87
Mortgage6.14
U.S. Core4.21
Corporates–3.31
Mortgage5.76
Mortgage5.67
Foreign Sovereign
4.78
Mortgage2.59
Foreign Sovereign
–4.09
U.S. Treasury
–3.57
Foreign Sovereign
4.05
High-Yield4.38
U.S. Treasury
1.99
Emerging Markets–6.03
Source: Commonwealth Asset Management/Morningstar Direct
1.95
2.73
3.744.36
6.536.87
7.613-year volatility in returns
Treasury Yields
10-Year Treasury Note Yield at Constant Maturity
Avg, % p.a.
JUN13
MAYAPRMARFEBJANDECNOVOCTSEPAUGJULSource: Federal Reserve Board /Haver Analytics
2.6
2.4
2.2
2.0
1.8
1.6
1.4
2.6
2.4
2.2
2.0
1.8
1.6
1.4
Yield up = Price down
Net Flows into Bank-Loan Funds
Fixed Income
Past performance is no guarantee of future results.
High Yield Spread
BOA ML HY Master - 10-year US Treasury
131211Source: Haver Analytics
9
8
7
6
5
4
3
9
8
7
6
5
4
3
Fixed Income continued
Past performance is no guarantee of future results.
Corporate Spread
(ML Corporate Master) - (10-year US Treasury)
13121110090807060504Source: Haver Analytics
6
5
4
3
2
1
0
6
5
4
3
2
1
0
Fixed Income continued
Past performance is no guarantee of future results.
Announcement
Corporate Spread by Quality
(AAA Corporate) - (BB Corporate)
1312111009Source: Haver Analytics
12
10
8
6
4
2
0
12
10
8
6
4
2
0
Housing: Prices and Supply
CoreLogic National House Price Index% Change - Year to Year NSA, Jan-00=100
1-family homes sold/1-family homes for sale
141312111009080706050403020100Source: Haver Analytics
20
10
0
-10
-20
3.5
3.0
2.5
2.0
1.5
1.0
0.5
r = 0.87
Credit and Banking
TED Spread
(3-mo LIBOR minus 3-mo t-bill)
1312111009Source: Haver Analytics
5
4
3
2
1
0
5
4
3
2
1
0
Credit and Banking continued
Velocity of Money: Ratio of Nominal GDP to Money Supply M2% Change - Year to Year Ratio
CPI-U: All Items, 1982-84=100Y/Y %Change
10050095Sources: MA/FRB/H, BLS /Haver
8
4
0
-4
-8
-12
-16
6
4
2
0
-2
-4
r = 0.46
Credit and Banking continued
US Bankcard Credit Cards: 90+ Day Delinquency Rate%
Homes Foreclosed: USANSA, per 10,000 Homes
13121110090807060504Sources: Standard & Poor's, Zillow.com /Haver Analytics
3.2
2.8
2.4
2.0
1.6
1.2
0.8
12
10
8
6
4
2
0
Employment
Source: Commonwealth Asset Management/Bloomberg
Expanding
Employment continued
Unempl+Margin Attach+Part Time Econ Reasons/CLF + Margin Attach
SA,%
1312111009080706050403Source: Bureau of Labor Statistics /Haver Analytics
17.5
15.0
12.5
10.0
7.5
17.5
15.0
12.5
10.0
7.5
Employment continued
Average Weekly Hours: Total Private Industries
SA, Hrs
13121110090807Source: Bureau of Labor Statistics /Haver Analytics
34.8
34.6
34.4
34.2
34.0
33.8
34.8
34.6
34.4
34.2
34.0
33.8
Business and Manufacturing Activity
ISM Mfg: PMI Composite IndexSA, 50+ = Econ Expand
Real Gross Domestic ProductSAAR, %Chg
10050095Sources: ISM, BEA /Haver
67.5
60.0
52.5
45.0
37.5
30.0
8
4
0
-4
-8
-12
Business and Manufacturing Activity continued
ISM Nonmanufacturing: NMI Composite IndexSA, 50+=Increasing
Gross Domestic Product% Change - Annual Rate SAAR, Bil.$
1312111009080706050403Sources: ISM, BEA /Haver
65
60
55
50
45
40
35
10
5
0
-5
-10
Business and Manufacturing Activity continued
Capacity Utilization: Industry
SA, Percent of Capacity
12111009080706050403Source: Federal Reserve Board /Haver Analytics
84
80
76
72
68
64
84
80
76
72
68
64
Gross Domestic Product% Change - Year to Year SAAR, Bil.$
Commonwealth Labor Index% Change - Year to Year
1005009590Source: Haver Analytics
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
12
8
4
0
-4
-8
Business and Manufacturing Activity continued
Conclusions
• Job growth was reasonable in Q2; unemployment remained at 7.6 percent, but payroll growth was strong.
• Inflation is not a large concern, for now.• ISM indices showed strong movements over the quarter.• Treasury rates moved aggressively higher across the curve.• Dividend sectors, especially utilities, remain relatively
expensive, despite a sell-off with the rise in rates. • The housing recovery seems to be fully under way.• GDP growth could surprise to the upside.
Looking Forward . . .
• Key themes to monitor– Employment improvement necessary for sustained recovery– Earnings season for Q2—beat or miss estimates?– Can housing continue its upward trend?– Will Europe emerge from recession?– Ongoing debt ceiling debates– Emerging markets manufacturing in Q2– Fed “tapering” and direction of Treasury rates
Disclosure
Investing involves risks, including loss of principal amount invested due to market fluctuations. All indices are unmanaged, and investors cannot invest directly in an index. Past performance is not indicative of future results. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The Bank of America Merrill Lynch U.S. Corporate Index tracks the performance of U.S. dollar-denominated investment-grade corporate debt publicly issued in the U.S. domestic market. The Merrill Lynch Municipal Master Index tracks the performance of U.S. dollar-denominated investment-grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. The Bank of America/Merrill Lynch High-Yield Master II Index tracks the performance of U.S. dollar-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. International investing involves special risks such as currency fluctuation and political instability. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.
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