As we expected in our Q1 report, strong corporate earnings pushed the market to new highs after the expected minor pullback in April. The Russell 2000 Index was the best performing major index, up 15.1% in the first half of 2013. Small cap value stocks tend to lead the market in a bull market like the current one.
Outlook for the second half of 2013
We expect more investors to sell their bond holdings and to use the cash to push equity indices to new highs before summer end. But general market indices have priced in strong corporate earnings growth for this year, so we expect to see larger sideways swings after summer when these hot-money flows slow down.
This will create a good trading opportunity and provide another opportunity for patient sideline funds to join the bull market.
Based on the US GDP trend, employment trends index, ISM data, and major leading economic factors, the probability of a US recession in the second half of 2013 is nearly zero; therefore there is no bear market in sight.
Just like we mentioned in our 2012 year-end report, with global economic recovery, strong housing demand, ample energy supply, uninterrupted liquidity injections from governments, low global credit default risks, and both volatility and interest rates expected to remain low, the second half of 2013 is expected to be a good investment environment.
Review of Covestor Models
Five of our eight Covestor portfolios outperformed the general market indices in the first half of 2013, and all models are fully invested and together hold nearly 200 securities, diversified across equity, fixed income, and REITs, covering all 10 major industry sectors (Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunication Services, and Utilities).
The investments discussed are held in client accounts as of June 30, 2013. These investments may or may not be currently held in client accounts. Investors cannot invest directly in an index. Indexes have no fees. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
