3rd Quarter 2013
October 01. 2013

The 3rd quarter brought many changes in the investment landscape across the bond and stock markets. Most investors were expecting the Federal Reserve to announce a reduction in the monthly bond purchases, known as Quantitative Easing round 3 or QE3, but in a surprising move, they backed away and decided to not take any action. This took many by surprise because they have been hinting at the move since May of this year. During this period of time, interest rates on the 10 year Treasury bond moved from 1.9% to almost 3% in anticipation of the Fed pullback. This change in rates impacted bonds negatively during this quarter, and will continue to be an area where we expect more than normal volatility. While writing this, the yield has slid back down to the 2.7% range and will probably continue to drift lower over the coming months until the QE taper actually begins.

On the equity side, we also saw a pullback in August that was short lived once the Fed announcement was made. Today the S&P 500 is trading at 1705, just 2% below its all-time closing high. Although we are thankful the stock market is up over 20% since January, we are also cautious that this type of move has largely been artificially driven by QE3 and the ensuing PE expansion (stock prices moving up), and to a lesser extent, earnings growth. While the economy is growing, it is difficult to know if it can continue to expand without stimulation from the Fed. We are in the camp that believes it is time to allow the economy to stand on its own two feet. Unfortunately, Ben Bernanke believes it is not time to taper purchases, which will delay knowing how the economy is really doing. With that in mind, we will continue to keep portfolios balanced, and not get overly weighted in equities after the run we have experienced.

This quarter we introduced Waterway Wealth Management’s secure client portal for online access to your account performance information as well as your current and archived quarterly statements. This only applies to Waterway Wealth Management’s quarterly reports and does not impact your monthly statements generated from Fidelity. We hope you will take the opportunity to login and experience the new site as it is more secure and eco-friendly than paper. Please contact the office should you have questions regarding login instructions. We welcome any feedback you might have about the portal.

The 4th quarter ushers in a time of Thanksgiving, and our annual Christmas Party scheduled for Thursday, December 5th. Please mark your calendars and plan on celebrating with us.

We look forward to seeing you in your upcoming fall review meetings and welcome a call if something arises in the meantime.

Dan Michalk CFP®, ChFC