April 2017 Financial Markets Summary

“Interest rates are rising! It’s time to abandon your bonds!”  This has been the popular commentary from many media outlets over the past few months.  Yes, Janet Yellen and the Federal Reserve increased the Fed Funds rate by a whopping 0.25% on December 14, 2016 and by another 0.25% on March 15, 2017.  This now leaves the Fed Funds rate at 0.75%, much below its 5.4% average over the last 50 years.   In reality, the Federal Reserve only controls this Fed Funds rate.  All other rates such as Treasury, CDs, savings, credit cards and mortgages are determined by the market.  For example, the 10-Year Treasury rate increased over 1% from July to December last year in anticipation of the Fed Funds rate hikes.  This is certainly not a time to abandon your bonds.

One of the most common questions we are hearing from clients is, “What will happen to my bonds when interest rates go up?”  Let’s use the above recent 1% increase in the 10-Year Treasury as an example.  Long-term government bonds tumbled by over 8%, and the Barclays Aggregate Bond Index fell by about 3%.  Contrary to that, short-term corporate bonds maintained their value, and high-yield bonds increased by over 3%.  Similar results held true as we examined the last seven straight rising rate environments.  Long-term government bonds struggled, while short-term corporate and high yield bonds generated positive returns.  We feel it is prudent to only own these types of bonds in client portfolios in this rising rate environment.  The risk/reward is not in your favor when it comes to long-term government bonds.

Bonds have experienced divergent returns this year, while emerging market stocks have done nothing but rise in value.  Argentina, India, South Korea, Mexico and China have all experienced returns exceeding 15% for the year.  So much for the media suggesting that all of these countries would go down the tubes with Trump in the White House.

2017 has certainly been a reminder that today’s headlines and tomorrow’s reality are seldom the same.

Asset Index Category Category Category Category 10-Year
3 Months 2017 YTD 2016 Average
S&P 500 Index – Large Companies 5.5% 5.5% 9.5% 5.2%
S&P 400 Index – Mid-Size Companies 3.6% 3.6% 18.7% 7.3%
Russell 2000 Index – Small Companies 2.2% 2.2% 19.4% 5.6%
MSCI ACWI – Global (U.S. & Intl. Stocks) 6.4% 6.4% 5.6% 1.8%
MSCI EAFE Index – Developed Intl. 7.3% 7.3% 1.0% 1.1%
MSCI EM Index – Emerging Markets 11.5% 11.5% 11.2% 2.7%
Short-Term Corporate Bonds 0.6% 0.6% 2.1% 2.4%
Multi-Sector Bonds 0.8% 0.8% 2.6% 4.3%
International Government Bonds 2.2% 2.2% 1.6% 2.7%
Bloomberg Commodity Index -2.3% -2.3% 11.8% -6.2%
Dow Jones U.S. Real Estate 3.2% 3.2% 7.6% 3.9%


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only.  Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy.  It is provided with the understanding that no fiduciary relationship exists because of this report.  Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice.  PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice.  If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives.  All rights reserved.