Summertime, and the living is easy

With apologies to George Gershwin, not so much if you’re into equities. Rollercoasters are great for summer vacations, but not so much for your investment portfolio. Climatological summer – June, July, August, straddle the second and third quarters of the calendar year. And for the past 5 years, equity performance in those two middle quarters has been more exciting, or scary than any amusement park rollercoaster.

In the 9 Q2’s and Q3’s since 2008, 5 of those quarters have exhibited negative returns in equities, ranging from around -4% to -14%. “Wait a minute John”, you might say, “that leaves 4 quarters of positive returns.” Yes, but only 3, as one quarter was actually flat, and those 3 were quite good, in the 11% – 16% range. But 6 of the 9 quarters have had double digit moves, up or down, hence the rollercoaster reference. (“Is he finished with all those numbers yet?” Yes, I think so.) 

So where does this leave us for the remainder of 2012? The players are all too familiar – the European debt situation, slowing growth in China, stubborn unemployment, political paralysis in Washington (with little hope of anything constructive before election day). But on the positive side, a turnaround in housing, improved credit health, stable energy prices and supportive interest rates around the world could encourage additional risk-taking. With negative real rates on cash and additional fixed income opportunities tenuous at best, equities have additional room to grow, if you like rollercoasters!