Wall Street has developed its own nomenclature over the years to uniquely describe marketplace situations. The adage best describing the current market and season is the “summer doldrums”. This refers to a period in the markets when trading volumes are reduced; many brokers and investment personnel are vacationing prior to the official end of the summer doldrums, Labor Day.

August produced lackluster results as the stock and bond markets quietly moved downward during the month with generally lower trading volumes. Commodities bucked the trend with positive returns after many months of poor performance. The markets are entering the fall season with more questions than answers. Will the Federal Reserve begin its much discussed tapering? Will the tension in Syria and the Middle East escalate into a larger military conflict? Will higher interest rates derail the housing recovery? Will another debt ceiling debate cause market angst? Will the stock market and corporate earnings hold up under external pressures? Unanswered questions mean uncertainty which leads to both opportunity and higher market volatility. Expect the unexpected in the coming months.

The international and U.S. equity markets all posted negative returns for the month ranging from down 4.11% on the Dow Jones Industrial average to down only 0.82% on the NASDAQ Index which was helped by the strength of Apple. Trailing twelve month numbers are still very impressive for the major stock indices at just below twenty percent. Emerging markets and commodities continue to lag, but are beginning to show signs of life once again. Their day will come.

If you have been participating in the market, our advice related to stocks is to stay the course and remain diversified. If you are observing stocks from the sidelines, look for any short-term price weakness as an opportunity to achieve your proper allocation to equities. While stocks continue to explore new record high levels, their current valuations are justified by historical standards. Remember the main role of stocks in your portfolio; to provide for long-term growth and build wealth. They have been doing exactly that for the past four plus years.

The bond market violently sold off in May and June as the Federal Reserve hinted at ending their accommodative policies. Yields on the 10-year U.S. Note rose from 1.70% to 2.70% in quick fashion. The “taper” is now priced into the bond market and August was the second consecutive month where bond investors are getting accustomed to a new trading range. It appears the 2.50%-3.00% 10-year Treasury yield range has replaced the artificially low 1.50%-2.00% range of the past. This is not all bad new as the bond market is more attractively priced looking forward.

Bonds provide for capital preservation, income, stability and low correlations to equity returns; important components for successful long-term portfolio strategies. Resist the temptation to change your long-term portfolio strategy because of short-term price movements.

Many Wall Street equity analysts were preparing investors for possible disappointment, but only the bears have been discouraged. For the second quarter 2013, 73% of the companies reported earnings above the mean estimate and 54% beat the revenue mean estimate. If the current 1.8% second quarter earnings growth rate holds, it will be the third consecutive quarter of positive growth. Corporate earnings are keeping pace with higher stock prices and on a 12-month forward looking basis the S&P 500 is expected to earning $117.00. With the S&P 500 index nearing 1,700, the current price earnings ratio is fairly valued at 14.5 times.

Since the earnings slowdown did not come to fruition, stock prices continued their assault into new record high territory. Once again, the U.S. equity markets led the way with the NASDAQ Composite grabbing top honors with a 6.63 percent monthly return. The S&P 500, the Dow Jones Industrial Average and the MSCI EAFE index also had a solid July and very impressive twelve month numbers. Emerging markets and commodities continue to disappoint investors. For those diversified portfolios hurt by exposure to these sectors, stay patient as these sectors will once again have their day in the sun.

Our advice related to stocks is to stay the course and remain diversified. While stocks continue to explore new record high levels, their current valuations are justified by historical standards. Remember the main role of stocks in your portfolio is to provide for long-term growth and build wealth. They have been doing exactly that for the past four years.

As you already know, bond markets sold off in May and June as the Federal Reserve hinted at ending their accommodative policies. Federal Reserve chairman Ben Bernanke comments related to “tapering” acted like reset button for interest rates in the bond market. In the blink of an eye, the yield on the 10-year U.S. Treasury Note rose from 1.70% to 2.70%. In July, interest rates were less volatile as a 2.60% 10-year Treasury yield became the new fulcrum point. While the interest rate rise caused a painful decline in bond prices, it also has given the bond market a more attractive valuation on a forward looking basis.

Remember the long-term role of bonds in your portfolio. Over time, bonds provide for capital preservation, income, stability and low correlations to equity returns; important components for successful long-term portfolio strategies. Resist the temptation to change your long-term portfolio strategy because of short-term price movements.

June reminds us, this is not the way the world works. Every major market index posted negative returns for the month as global and domestic events were absorbed by the stock, bond and commodity markets.

Here at home, the Federal Reserve introduced us to the concept of tapering. Chairman Bernanke said the Fed would begin tapering bond purchases later this year, if the economic data continues to improve. While he stressed several times that “policy is not pre-determined”, the market heard the Fed will be removing the economic training wheels and the market began to tip. The FOMC said they will continue to buy $85 billion in U.S. Treasury and mortgage-backed bonds each month, but at some point in the future the market will need to ride under its own power.

Global economies are struggling too. An economic slowdown in China, political unrest in Brazil, protests in Egypt, record central bank stimulus in Japan and a sluggish European Union depressed values in most international markets. All of these factors coupled with a strong U.S. dollar hurt both international stocks and bonds.

For those investors who thought gold was the single best answer in a world of uncertainty, think again. The precious metal fell 14.68 percent in June alone and has declined over 23 percent in the last year.

Despite the recent pullback in stock prices, the outlook is still positive in our view. The next round of quarterly corporate earnings reports will dictate the market’s near term direction. At the present time, we view stocks as fairly valued on a historical price earnings ratio. Corporate earnings need to keep pace justifying the current valuations. If they do, stock prices will rise from here, if they disappoint a June repeat is a distinct possibility.

For the past year we have been telling anyone who will listen to lower your expectation for bond returns. Five and six percent annual returns in the bond market of the past five, ten and fifteen years cannot mathematically continue. At the beginning of the year we said a one to three percent “earn the coupon” year will be a good one for bonds. After the first six months of 2013, if the bond market manages to avoid its first negative return year since 1994, it will be a good year. While the interest rate rise is real and bond prices are lower, bonds on a forward looking basis are more attractive today than they were four weeks ago.