First Quarter 2013 Market Review

The investment climate was remarkably good during the first quarter.

With the exception of the financial melt-down of the tiny island, Cyprus, and some late in the period saber rattling by the North Koreans, investors benefited from a virtually crisis free environment. The housing industry continued to improve. Corporate profits were modestly higher and above expectations. Economic growth was mostly steady and only softened with the uncertainties created by the sequester. And finally, stock market volatility dropped sharply and more than half of the ten economic sector stock price indexes posted double digit gains for the quarter.

The Health Care sector led the way with a 15.22% gain while both Technology and Basic Materials came in below 5% for the period. The S&P 500 reported a total return of 10.61% for the period, the Russell 1000 increased 10.96% and the average diversified domestic stock mutual fund was up 10.2%. Small Cap stocks outperformed large company stocks and value (defensive) stocks outperformed growth issues in most areas. In the fixed income area, the Intermediate Government/Credit Bond Index increased just 0.26%.

Given the above average strength of the stock market over the past six months, it is not unusual for the market to pause or pull back for a period of time.

In addition, the April to May period is a typical seasonal period during which such corrections have occurred in the past. It is not necessarily usual, however, for the markets to undergo a major decline unless stocks are extremely overvalued, economic conditions deteriorate substantially or something catastrophic like another financial meltdown occurs. Stocks are not excessively expensive based on historical standards, and in our opinion, economic conditions are holding and another financial meltdown is not in the cards.