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Rob Schultz, CFP®, PFP

The markets are off and running in the year of the horse

In the Chinese year of the horse, things have been a little difficult out of the gate. Below are some key points on where we stand as of mid-February.

The volatility experienced in the equity market at the opening of 2014 is well within the historical range.

  • Investors may be surprised by recent volatility because it follows a year when developed market equity returns were exceptionally high and volatility was unusually low. The presence of volatility keeps investors grounded and mindful there are risks to investing.
  • The recovery from the global financial crisis is continuing, however political risks remain.
  • While global growth is expected to be slow but positive, Europe is shifting to a recovering environment. Most notably Germany and France which represent a large percentage of the EU economy
  • By some metrics, US equity valuations look high but those could be warranted with continued growth. With interest rates low, stocks appear more attractive than bonds.
  • The emerging markets are experiencing country-specific problems, such as slower growth in China as well as currency concerns in various smaller countries such as Argentina that have emerged as global liquidity begins to dry up with the tapering of Federal Reserve bond purchases.
  • There are both risks and opportunities in the bond markets with opportunities to augment core fixed income in portfolios with flexible Absolute Return bond strategies and selected non-core bond holdings. After a disappointing 2013, higher tax rates make municipal more attractive for those in the top tax brackets.
  • While a change in Fed leadership has historically been correlated with an increase in market volatility, the appointment of Yellen is likely to be a positive for the markets because she is expected to continue the course set by Bernanke, which is likely to add stability.
  • Investors should not react too dramatically to short-term volatility, and instead recommended maintaining highly diversified portfolios with modest tactical overweights and underweights to express near-term views.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.Past performance does not guarantee future results.Depending upon the municipal bond offered, alterative minimum tax and state/local taxes may apply.

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Securities and investment advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investment advisor. Additional investment advisory services offered through NWF Advisory Services Inc., a registered investment advisor not affiliated with Royal Alliance Associates, Inc. Certain insurance products offered through New World Financial & Insurance Services, Inc., an entity not affiliated with Royal Alliance Associates, Inc. or registered as a broker/dealer or investment advisor.

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