Market Pulse: A review of the second quarter |

Market Pulse: A review of the second quarter

David Vomund

Last quarter started strong, but ended weak. What started out as normal and in fact healthy profit-taking after a long bull run then kicked into second gear.

First came Ben Bernanke’s comments that the Fed will someday slow and ultimately end QE. That news hit both stocks and bonds.

When the selling subsided increasing worries about China’s economy and banks took over. Assets of all kinds, here and overseas, hit the skids. The emerging markets suffered the most.

Since everything was falling, one has to assume that sellers of stocks and bonds preferred to hold cash knowing full well that it earns nothing and will earn nothing for years. They are playing a dangerous game.

Selling good positions hoping to buy them back lower means you have to be right twice. For most investors this is a losing strategy. The market is seldom so accommodating.

The message of the markets is that stocks are more attractive than bonds, commodities, and especially gold, which has collapsed from more than $1,900 to $1,200.

In no environment I foresee will stocks paying 3 or 4 percent and raising their dividends be a bad investment. They will fluctuate, of course, but they’ll do well over time.

If interest rates rise so far that bonds become true competition for stocks that will either be because the economy is doing very well or inflation is a problem. If the former, corporate profits will grow even faster and stocks will benefit.

As for the latter, inflation expectations are falling fast along with commodities of all kinds, gold in particular. Deflation should be the concern. In some quarters, it is.

Money has been coming out of bonds, especially Treasurys, and now some is going into stocks. No wonder. Treasurys were all risk and no reward. Corporate America is in great shape, stronger than ever with record profits, and the U.S. economy is a tower of strength compared to others. Stocks are the place to be.

Others must agree. Despite all the negatives, the scandals, the geo-political risks and the fiscal problems, U.S. stocks are doing well and outperforming other asset classes and foreign markets.

David Vomund is an Incline Village-based fee-only money manager. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.