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Our Take on the Second Quarter

All eyes were on central banks as volatility returned to both the stock and bond markets.

Jeremy Glaser 22.07.2013
Volatility returned this quarter in both stocks and bonds as fears about central-bank actions across the globe made investors increasingly skittish. Despite some big swings in the market, the broad-based Morningstar US Market Index rose 3.2% during the last 13 weeks.
The Federal Reserve's next move was under intense scrutiny throughout the quarter. In May, testimony from chairman Ben Bernanke and minutes from an earlier Federal Open Market Committee meeting raised fears that the central bank was on the brink of slowing down its purchases of mortgage-backed securities. Worries about this so-called tapering intensified in June after the bank's policy statement revealed the Fed raised its projections of economic growth and said that it could begin taking its foot off the accelerator as early as the end of this year. The focus on the Fed's potential tightening sent bond markets into a tailspin. The yield on the 10-year Treasury moved from 1.61% at the beginning of May all the way to 2.60% in June, before pulling back slightly to end the quarter around 2.50%.

The Fed has begun the talk of tapering because it is starting to see improvement in the U.S. economy. Indeed the data in the quarter did show steady, if unspectacular, economic progress. Morningstar director of economic analysis Bob Johnson sees real underlying strength across a number of areas from energy production to manufacturing to housing. That being said, there are still headwinds to much faster growth. Consumers remain under pressure, employment is getting better but is still far from the peak, higher mortgage rates will have some impact on housing, and slowing emerging-markets growth could present a challenge.

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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