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1st Quarter End March 2013

The Markets

"Bull markets are built on pessimism, grown on skepticism, mature on optimism, and die on euphoria," according to famous investor Sir John Templeton, founder of Templeton Funds. I don't know if we are in a new bull market, but if we are I think we are in the skeptical stage. Cash returns are nearly zero and strong stock markets have rewarded many investors. I have been getting a lot of questions about strategy, as well as current market valuation. In terms of valuation, should we worry about this new high? For some perspective, it pays to have an "old" advisor. When I first started my career in this business in the 1970's, the Dow later hit 2,000, which at that time was a new all-time high. A lot of investors were worried, as they had experienced a 50% decline in blue chips stocks, (the "nifty fifty") during that period of time. You know the rest. A 10,000 Dow back then would have seemed unimaginable.

Financial Market Update* Year-to-date change as of March 31, 2013
S&P 500 Index 10.61%
Dow Jones Industrial Average 11.93%
NASDAQ Composite 8.52%
Russell 2000 12.39%
MSCI EAFE US$ (International) 5.13%
Barclay US Aggregate Bond -0.12%
*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

A Strong First Quarter – Up 10%

If history is a guide, when the S & P has a strong first quarter the year usually ends positive. You may recall last year the S & P was up 12% in the first quarter, and ended the year up 13%.

It is important to avoid the temptation to market time or very broadly change strategy based on current conditions or a near term outlook. It is important to diversify by asset class, (stocks, bonds, cash alternatives, etc.) as this can increase the likelihood of achieving return objectives under different economic and market conditions, as well as take advantage of short term market opportunities, when they present themselves.

The Federal Reserve appears to be keeping rates low for the foreseeable future, which means cash alternatives, CD's, short term bonds, will pay next to nothing and after inflation, potentially negative returns. Some public companies pay dividends and have strong balance sheets and good performance results. It is not surprising that many share prices have increased in value. Our approach to investing/ managing and preserving wealth over time is to stick with a well-designed, balanced strategy that fits your objectives. If you are in or near retirement, you may need to create income as well as growth. A younger investor can typically save, have opportunity to pay down debt and handle more volatility in a longer term investment portfolio.

We are seeing signs of recovery. Believe it or not, near Detroit in communities such as Birmingham, Bloomfield Hills and Rochester, homes are being bid up and selling in a matter of days. My brother recently transferred back to Michigan from Kansas looking to buy a home and is amazed at the activity and price levels. I'm also hearing from many clients that their businesses are thriving. This is not to suggest that we are out of the woods or that the future is without challenges. We all know that there are very difficult decisions ahead regarding budget situation, entitlements, and tax rates. The sooner that we deal with those realities, the better off we will all be.

The market has marched ahead, however, despite the Fiscal Cliff tax increases, the sequester spending cuts, the banking crises in Cyprus and other geopolitical challenges such as North Korea.

Tax Season

If your tax return preparation process uncovered any questions or concerns, please be sure to let us know. For many 2013 will be a year of higher tax rates. Reviewing strategies to lower them is a part of our analysis and we are happy to review it with you.

We're Growing

We recently have added a new investment executive to our team, Jim Duronio. Jim graduated with a master's degree from Walsh College, is a Certified Investment Management Analyst (CIMA®) and is also a Chartered Alternative Investment Analyst (CAIA). He recently held portfolio management positions with Plante Moran and JP Morgan. Along with Jim's research and investment experience, his skill set can help us streamline the investment process and add depth to our research capabilities.

Best Regards,


S&P 500: An unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. Dow Jones Industrial Avg.: An unmanaged index of 30 widely held U.S. Stocks. NASDAQ Composite: An unmanaged index of securities traded on the NASDAQ system. Russell 2000: An unmanaged index of small cap securities which generally involve greater risks. MSCI EAFE: An unmanaged index that is generally considered representative of the international stock market. Barclay's Capital: The U.S. Aggregate Index covers the USD-denominated, investment- grade, fixed-rate, taxable bond market of SEC-registered securities. Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Mgt Group is independent of RJFS. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. As Financial Advisors of RJFS we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Diversification does not ensure a profit or guarantee against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dividends are not guaranteed and must be authorized by the company's board of directors.

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