I wanted to let all of you know that I will be out of the office from June 21st-June 28th for a “road trip” to take our youngest daughter, Kelsie, to South Dakota.  I grew up there in a small town and moved to Oklahoma when I was 15 years old.  Since she has never been there before, we have an opportunity to take her and show her where I was born and spent my childhood.  We will be visiting relatives and also go through the Black Hills and tour the Mt. Rushmore area.  We are excited to spend this time with Kelsie while she is home from college this summer, and I am looking forward to going back and visiting some of my childhood memories.  Chris and Sam with be here and are more than capable of assisting you if you need anything while I am gone.  Contact Chris with any account service issues such as distribution requests, and Sam for any investment or trading questions.  I will be here as usual through Thursday of this week should you need me personally for anything before I leave.

 The Markets:

Volatility has crept back into the stock market action over the past month or so, with almost opposite moves in the major stock indices from one day to the next.  Last Friday the Dow Jones Industrial Average closed down approximately 106 points, after producing a triple digit gain the day before.  The Standard & Poor’s 500 stock index has been following suit.  As of Friday, June 14th, the S&P 500 has dropped about 3.6% from its closing high back on May 22nd. (Google Finance)  Could there be more of a correction ahead for the summer?  We will have to wait and see.  We have maintained lower than usual stock/equity exposure in our portfolios for all risk levels over the past several months, and are watching this closely.

With bond yields rising over the past month (bond prices falling), we did rebalance portfolios in early June and added some additional fixed income/bond positions based on our view moving forward into the second half of the year.  Patience at this point is key looking ahead, and we will continue to monitor and make adjustments as we feel are warranted.

 Spotlight shines on the Fed

The Federal Open Market Committee (FOMC) – the policy-making arm of the Federal Reserve – will conclude its two-day meeting on Wednesday, which will be followed up by a press conference from Fed Chairman Ben Bernanke.  Any FOMC meeting, and there are eight each year, typically captures the attention of investors because the Committee holds plenty of sway over the economy via its role in setting and influencing interest rates.

With the country slowly recovering from the worst recession since the 1930s, the Fed has kept the fed funds rate at near zero since late 2008 and has purchased over $2.5 trillion in longer-term securities, according to data provided by the Fed.  The programs have not been without their detractors, and those dependent on income from investments have paid a price. But the Fed, through low rates, is trying to boost the economy by pushing up asset prices like stocks and housing, hoping it will spur consumer spending, hiring, and business investment.

Recently, however, we’ve seen some minor jitters in the stock market and a backup in bond yields amid talk the Federal Reserve may soon dial back its bond buys. Further, European and emerging markets have also felt the chill from the U.S. (Bloomberg).

Interest Rates

Given the somewhat confusing and muddled message from the Fed, investors will be looking for clarity and reassuring words from Chairman Bernanke. Few are anticipating any tweaks in policy.  It’s highly unlikely that Bernanke will offer a specific roadmap for the next 6-12 months, but last Thursday the Wall Street Journal may have given investors a sneak peek at Bernanke’s message.

That potential scenario – once again stressing that he expects a “considerable” amount of time to pass between the end of the bond-buying program and any increase in the fed funds rate – helped stocks rack up their only winning day last week. It also calmed the bond market, with yields ending the week slightly lower.

So what’s going on? A wide range of indicators (CME Group, WSJ) have very recently suggested the Fed might be contemplating a hike in the fed funds rate sooner than previously expected.

That’s a bit surprising since the Fed has explicitly said it won’t consider an increase until at least as long as—

  1. The unemployment rate remains above 6.5%.
  2. The Fed’s own inflation forecast remains below 2.5%.
  3. Longer-run inflation expectations remain well anchored.

Currently, none of these thresholds are in danger of being breached. Nevertheless, the broad chatter about dialing back the bond buys appears to have some on the Street second-guessing how long the Fed is committed to keeping rates low.  It should be an interesting week.

We hope all of you have a great week and please do not hesitate to call if we can be of further service in any way.  We appreciate the privilege to serve each and every one of you.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.


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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly.  Past performance does not guarantee future results.

3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly.  Past performance does not guarantee future results.