Relationships Change, Risks Change

Posted in: Economics, General, Stock Market, Thought of the Week

Very few relationships in the market are permanent and often we will see a temporary change due to a number of economic factors. Recently, the relationship between stocks and bonds has changed due to the anticipation of an end to Quantitative Easing (QE3). The last time we saw this change was at the beginning of the second round of Quantitative Easing (QE2) in 2010.

In 2010, the implementation of QE2 started a rally in both stocks and bonds. However, instead of investors buying stocks and bonds like they did in 2010, they are selling in 2013. There are a couple of reasons this is happening. Short-term investors are fearful that our economy is not strong enough to grow without the help of QE. Additionally, bond investors believe the end of QE will lead to a rise in interest rates as our economy strengthens; and in a rising interest rate environment, investors prefer equities.

Our investment committee believes income-seeking individuals should stay invested through these volatile time periods as the short-term traders exit the market. These volatility spikes are normal as QE goes away and investors regain confidence that our economy is strong enough to carry the markets forward. Read this week’s Thought of the Week to find out more about the end of QE.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.