Individuals look at bonds as a place where they can preserve their investment capital while being paid a modest amount in interest.
Stocks in the US have been the belle of ball or the best house on a bad block depending on your perspective of the global economy. Either way the S&P 500 has added 15.3% year to date which far outpaces most other developed markets around the world.
Equity markets outside the US retreated in the second quarter. Global markets sold off 2.7% in the quarter although are still up 1.2% for the year. A strong US Dollar weighed on performance for most international markets. Stocks were impacted by volatile trading in Japan and growing concerns over the stability of China’s banking system.
Investors returned to the market with enthusiasm which lifted stocks higher again this quarter. The markets rose at a steady pace most of the quarter. The final two weeks brought some volatility as the Federal Reserve sent mixed messages about tapering their bond buying program. This lead to about a 5% pullback in stocks from the market’s May highs.
The S&P 500 has pulled back about 5% from its May 21 closing high of 1,669.2 and should be a welcome sign to investors. Pullbacks are par for the course in any bull market.
Cash, money market funds and very short term bonds are part of most asset allocations.
Investors have been looking everywhere for yield in this low interest rate environment.
Investors and companies have been holding onto more cash even as the US economy show signs of improvement. The phenomena of holding cash is most pronounced in the technology sector.
There was an article on CNN/Money that discussed how some individuals are tapping their 401k accounts to buy homes as investments.