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We don’t put much faith in market forecasts, even our own. But the forecasts that we made at the beginning of the year look pretty good right now. In the January issue we said “We remain quite optimistic about the stock market for 2013,” and as we write this, the S&P 500 index is up about 13% for the year to date. We also said, “We remain wary of high yield bonds,” and we expanded on our concerns in the February issue. So far this year, the high yield market has been fairly weak. One of the largest high yield bond ETFs, the SPDR High Yield Bond ETF (symbol JNK) is down about 2.5% in price, and with dividends it is about flat for the year.
It is also worth noting that our “year-end bounce” picks that we made in our December investment newsletter have done particularly well this year. Eight of the ten year-end bounce candidates that we identified are up so far this year, and the group is up an average of 33% year-to-date, well outpacing the broader market.
But that’s enough of patting ourselves on the back for some good calls at the beginning of the year. Let’s turn to what we expect for the second half of 2013. While most of the last six months have been relatively placid and profitable for investors, the past couple of weeks have been quite different. When Fed Chairman Ben Bernanke mentioned in mid-month that the Fed was likely to begin cutting back its bond purchasing program later this year, that spooked both the stock and bond markets. In the week and a half since Bernanke’s speech, the stock market has become very volatile with the Dow Jones Industrial Average moving by more than 100 points every day except one. While the volatility has gone in both directions, the market is still down about 2.7 percent since the speech. The bond market has been hit even harder. We wouldn’t be surprised to see some of this volatility...