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Wednesday, 05 June, 2013

Market Update

Wondering about recent volatility in the markets?

We continue to see pressure in the equity markets as a result of market expectations that the Fed may be forced to at least cut back on QE measures given improving economic fundamentals. The question remains how the stock market will react when the Fed does begin to taper QE. We view this as a good news/bad news scenario. Good news from the prospective that the economy is improving, but bad from the perspective that rising interest rates could potentially derail the recovery and add additional instability if not controlled.

Bond investors remain on edge given the negative impact higher interest rates will have on bond prices. Though we find it difficult to believe that bond investors would be surprised by these developments, this may be more of a question of timing vs. the eventuality of rising interest rates.

Scott Minerd, CIO of Guggenheim Partners, put out a timely note today highlighting the potential negative impact rising rates might have the economic recovery in the US. Housing has been a major driver in recent GDP growth, and higher mortgage rates could make new home purchases less affordable and potentially slow growth. Our opinion is that mortgage rates, though higher today vs. even a week ago (4.23% vs. 3.92%), still remain well below historical standards. In addition, housing prices remain well below 2007 levels making new home purchases still very affordable for Americans despite the higher mortgage loan rates. However, we intend to keep a close eye on developments and make adjustments as needed to client portfolios.

Posted By:  adminUser - Wednesday, 05 June, 2013 at 12:00 AM

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