Welcome to the Asset Management Newsletter, June 2012 edition.
This month, like most months, was very typical in its unpredictability. At the beginning of June, Europe once again became the focal issue and things looked pretty bleak, plus our economic indicators continued to show weakness; and yet, the market was up over 4% for the month. It wasn’t a strong enough rebound to wipe out the losses in the second quarter, as the overall market was still negative by about 2% for the quarter. More Below
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If you’ll look at the S&P 500 chart year to date, you’ll see how choppy this market has been this year: starting out with 3 great months then pulling back in April and a sharp decline in May. Our equity model was completely out by May 21st so we missed the worst of the market selloff the end of May/first of June. We did go back into the market with a little over half our maximum equity allocation and remained at that level at the end of the month of June.
There are two factors contributing to this rebound: first, the market was almost pricing in a complete failure of the EU and with it many of the European banks. By electing to add liquidity to the banks, they effectively eliminated the short term risk that there would be a collapse due to liquidity. With that out of the picture, a re-valuation needed to be done. That certainly doesn’t mean that the problems are solved long term and they will still have to face needed cost cutting measures to achieve long term health, at least the immediate risk is pushed down the road. Secondly, the market seemed to be accepting of bad news as further argument that the Fed needs to step in with some additional easing. The Fed may not want to admit that it has few options left, but the market seems receptive to the idea that there may still be a magical formula that can quickly energize the economy. The worse the news, the more likely the Fed will have to act. As we’ve seen with QE 1 and QE 2, these economic shots in the arm may be nothing more than a sugar pill.
We’ll continue to let the price of the market dictate how we will deploy allocations; ready for either upping the amount in equities or pulling back if this turn around does not continue to materialize, which I hope that it does. We’ll see a lot of earnings reports out in July so we’ll get a better grasp of how our corporations are progressing through this weaker economy.
Thanks for listening. Please feel free to forward this message to any friends or family that you think will benefit from it. Talk with you next month.
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