Originally posted in the Daily Journal of Commerce, Portland OR

Published April 8, 2013
Both the Dow Jones industrial average and the S&P 500 average reached all-time highs in the first quarter of 2013. The Dow jumped 11.25 percent for its best first quarter in 15 years. The S&P moved up 10 percent, finishing the quarter at 1,569.19 and eclipsing the previous high of 1,565 set 5½ years ago. The NASDAQ closed up 8.21 percent year to date at 3,267.52 and reached a 52-week high, but it’s far from its peak. Of course, these “highs” are not adjusted for inflation, and will have to be higher to claim higher real returns.

Meanwhile, 30-year Treasury bonds declined 3.1 percent for the first quarter, with the broader bond market declining 0.3 percent. In March, bonds declined 0.1 percent versus a return on equities of 3.75 percent. This is consistent with my previous admonition regarding bonds and the pressure they will be under as interest rates rise.

Previously I remarked that a movement from bonds to equities is expected as the Fed policies continue to favor equities. Investors have been forced to take more and more risk to find yield, and this will not end well. Bond exchange-traded funds are taking more risk; money market funds, normally thought to be a safe haven, are forced to take more risk.

The averages reached these new records in spite of year-end wrangling over the budget in Washington. First, the so-called “fiscal cliff” fixated the markets, but then came and went. Then sequestration loomed, and that was thought to mean the end of the rally. But the market just shrugged. Another crisis […]