In the latest installment of our quarterly newsletter, my colleagues and I share some observations on the strong first three quarters of 2013 and offer our rationale for being bullish on stocks but bearish on bonds. We also discuss two income securities we are currently buying, Rogers Communications (RCI) and Spectra Energy (SE), and one stock, Express Scripts (ESRX).
Click here to go to the full report on our website. Following are a few highlights:
- The stock market continued its strong run during the third quarter and ended up 19.8% for the first nine months of the year. Bonds, on the other hand, lost 1.9% during the first three quarters as interest rates rose and bond prices fell.
- The U.S. Fed boosted stocks by delaying its planned taper of stimulus measures and appears likely to continue its bond buying at least through the end of 2013.
- Five years after the market’s historic swoon in the fall of 2008, stocks have recovered their losses and more, yet we still find valuations attractive. In addition to the Fed’s support, underpinnings of the market rally that we expect to continue include improving economies in the United States and abroad – even in Europe – and rising corporate earnings.
- As the stalemate in Washington continues, stocks have now pulled back from the all-time high reached in mid-September, and we expect more volatility as Congress and the White House wrangle. Nevertheless, we consider a default on government bonds to be unlikely and do not expect the current crisis and debate to have a long-term impact on the economy or markets.
- While bullish on stocks, we remain bearish on bonds, primarily because we expect interest rates to rise from their historical lows to more normal levels. Meanwhile, yields are so low today that many bonds do not even protect investors from inflation.
- For income investments, we favor a variety of securities that provide greater yields and/or offer the potential for increased payouts over time. Examples of these securities include master limited partnerships and common stocks with high yields. We also like certain convertible securities and preferred stocks.
As always, feel free to contact us if you have any questions or comments. For more information, visit our website.
Jordan Smyth and the Edgemoor Investment Advisors Team