Quarterly Investment Update - 2nd Quarter 2014


Stock Market Commentary -

Global equity markets gained higher ground in the second quarter with volatility falling to levels not seen since 2007. The S&P 500 delivered a 5.2% return for the quarter and has now reached 22 fresh highs year-todate. While all sectors of the market had positive returns during the quarter, the Energy sector rallied most, up 12.1% as sectarian conflict in Iraq and concern over the world's supply pushed oil prices higher. The Utilities sector, up 7.8% for the quarter, has been the top performer yearto- date through June with a gain of 18.7%. Midcap and Small cap stocks rose 4.3% & 2.0%, respectively. Developed international equities grew 4.3% during the quarter as the European Central Bank's Mario Draghi introduced stimulus measures to boost the sluggish economy. This accommodation along with improving economic prospects in China produced strong results for Emerging Markets equities, up 6.6% for the quarter. The Real Estate sector continued its climb upward, gaining 7.2% as measured by the DJ Wilshire REIT Index. Moving into the second half, the S&P 500 reached another new high. While this positive trend could continue if earnings growth proves sustainable, volatility could pick up as the market exceeds fair value.

Bond Market Commentary -

Bond prices continued to move higher in the second quarter. Long-Term U.S. Treasuries (bonds with maturities of 20 years or more) rose over 3% during the quarter and are up over 12% year-to-date. The more diversified Barclays Aggregate Index gained 2% during the quarter for a year-to-date return of 4.4%. Intermediate-term municipal bonds gained 1.3% for the quarter. The rally in treasury prices and the decline in interest rates are due in part to subdued economic data and conflicts in Syria, Iraq, and Eastern Europe as well as declining supply. Overseas buyers, led by China, are buying U.S. debt to gather dollars and help weaken currencies to encourage exports. Also, the 10- year U.S. treasury yield of 2.53% compares favorably to yields in other developed markets. Ten-year government bonds issued in Germany yield only 1.31%, and comparable bonds issued by the Japanese government trade at a yield of only 0.6%. Meanwhile, the supply of U.S. government debt is shrinking due to a narrowing budget deficit.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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