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Trust & Wealth eNewsletters


View archived articles from the Trust and Wealth Management newsletter "The Economy and Market from Here...at Hills."


April 2014 | January 2014 | October 2013 | July 2013


Some trust products and IRA contributions/balances are not a deposit, not FDIC insured, not insured by any federal government agency, not guaranteed by the bank, and may go down in value.


April 2014 Economy and Market from Here...at Hills.

Volatility returned to the market during the first quarter. The S&P 500 declined 5.76% between January 15 and February 3, marking the first notable correction since June of last year. Profit taking and disappointing reports from the emerging markets were the main contributors to the sell-off. However, markets quickly rebounded. The S&P 500 once again gained new highs during the quarter and ended in positive territory up 1.6%.

Record snowfall and frigid temperatures throughout most of the nation have likely distorted economic data, at least in the short-term. Employment and housing data have been affected most by the weather. Conversely, manufacturing and sentiment reports continued to show signs of continued expansion. Modest GDP growth is expected in the first quarter, but will pick up as we enter the summer months.

Interest rates fell for most of the quarter. The 10-year Treasury began the year yielding 3.03% and fell to 2.72% by March 31. The new Federal Reserve Open Market Committee Chairperson, Janet Yellen, reiterated the Fed’s commitment to slowly taper quantitative easing should economic conditions continue on the current path of improvement. Yellen indicated that the Fed may begin to raise the fed funds rate six months after the end of tapering. Fed futures predict the Federal Reserve will begin to raise the fed funds rate from near zero by the middle of 2016.

Equity markets have rallied substantially over the last several quarters. While earnings have been strong, valuations (as measured by price-to-earnings multiples) have returned to average levels. We continue to believe that stocks provide the best opportunity for growth over the intermediate and long-term horizons. However, we recognize there is greater vulnerability to negative surprises such as global events including those that are occurring on the Crimean peninsula in Ukraine.

A 10% market correction has not occurred in more than three years, and one typically occurs on average every twelve to eighteen months. The Trust and Wealth Management Investment Committee has maintained an overweight position in customers’ common stock portfolio allocations for several quarters. We are also using record market levels to rebalance accounts that have grown outside of their strategic range. It never hurts to reward the market by harvesting gains.

We expect interest rates on bonds to reverse course and continue on an upward pace, dampening total returns in bonds for the next few years. It is hard to say how quickly or dramatically rates might rise. We happen to think it will occur slowly. While rising rates will mean that bond values will decline, the more positive view is that income will return to more meaningful levels. This will improve the bond allocation’s ability to cushion portfolios during times of stock market stress.

Please feel free to contact your account administrator to review your account and determine if the current allocation is still appropriate for your circumstance.



January 2014 Economy and Market from Here...at Hills.

Improving economic conditions and strong corporate earnings around the globe propelled stock markets upward in 2013. The S&P 500 ended the year with the best return since 1997. It closed the year up 32.4%. The MSCI EAFE gained 23.6% over the same period, reflecting very good returns on international stocks.

Interest rates edged slightly higher during the quarter as the Federal Reserve Open Market Committee (FOMC) announced it will begin to unwind its asset purchase program, often referred to as quantitative easing. The yield on the 10-year US Treasury now stands at 3.03%, up 1.27% from the end of last year. Yields on bonds and bond funds are now higher than they have been in more than two years. We anticipate this trend to continue in the coming quarters as the FOMC continues to slow down bond buying.

Inflation has remained modest as economic growth, though positive, remains below historical average. Global stimulus efforts in Japan, Europe and the United States designed to promote economic growth have not yet resulted in significant inflation at the consumer level.

Despite several consecutive quarters of positive returns, our outlook for the stock market remains constructive even though much of the near term opportunity has likely been captured. We continue to feel that stock valuations are reasonable and opportunities for earnings and dividend growth remain intact. At current interest rates, bonds and cash are best viewed as a store of liquidity. We have shortened duration slightly as we believe interest rates have troughed.

As we mentioned in our comments many times before, corrections in the stock market occur with some frequency and can unfold quickly. That said, the S&P 500 has not seen 10% correction in quite some time. On average, a 10% correction occurs a little more frequently than once per year. The last meaningful correction came 28 months ago. This does not mean that a correction is imminent, but a decline of 5% to 10% or more in reaction to a disappointing earnings season, political uncertainty, geopolitical instability, or a major natural disaster is always a possibility. This is why investment grade bonds and cash are important elements in diversified portfolios.

Strong market returns over the last few years have brought stock allocations at or near the top of the strategic asset allocation range for many seasoned accounts. As a result, many of our clients are seeing rebalancing occur in their accounts as we adhere to the strategic guidelines set out in the investment advisory agreements we have with each of you.

Please feel free to contact your Hills Bank account administrator to review your account and determine if the current allocation is still appropriate for your circumstance.



October 2013 Economy and Market from Here...at Hills.

The third quarter ended with several large events. The Federal Open Market Committee (FOMC) decided to continue making bond purchases at the current level and deferred making a decision on tapering until their next meeting. The United States and Russia agreed on a plan in which Syria will relinquish its stockpile of chemical weapons, thus avoiding U.S. or U.N. military action. And finally, the House of Representatives and Senate were not able to agree on terms of a continuing resolution to continue funding the government, which led to a partial government shutdown at midnight on September 30.

On the whole, economic reports were mixed for the quarter. Housing continued to improve in terms of both units sold and higher prices. Employment was mixed. The trend over the last few years has been positive, but the pace of job growth garners little confidence that there will soon be sustainable improvement in consumer sentiment and spending. With the exceptions of vehicle sales and home improvement purchases, retail sales generally missed the mark.

Stock market returns for the third quarter were positive. The S&P 500 gained 5.25% and international stocks, as measured by the MSCI-EAFE, finished the quarter with a return of 11.71%. Bond yields continued to climb. The 10-year Treasury reached 2.98% on September 5 – the highest level since July 2011, before retreating back to 2.62%. As a result, bond prices continue to be pressured. The total return for the Barclays Capital Aggregate Bond Index finished the quarter up modestly at 0.57%, as interest income just offset price declines for the period.

We have been shortening the duration of our bond portfolios in an effort to preserve capital as we expect interest rates to continue to rise to a more normal level. Inflation pressures have been modest so far during this recovery. However, due to the coordinated monetary stimulus efforts by the world’s largest economies, we have added some inflation protection to bond portfolios.

Our expectation is that stocks will produce greater returns than bonds over the next three to five years, and we continue to maintain an overweight position in that asset class. Even though we are more constructive on stocks than we are on bonds, it is important to place some value on the diversification benefit of bonds; especially for those who are relying on their portfolio for cash flow. Stock markets frequently experience 5% and 10% declines and these corrections can occur quickly and unexpectedly. Uncertainty surrounding the current government shutdown and upcoming debt ceiling debate could trigger such a correction. Investment grade bonds and cash provide the best diversification to stocks particularly in declining markets.

Please feel free to contact your account administrator to review your account and determine if the current allocation is still appropriate to reach your financial goals.



July 2013 Economy and Market from Here...at Hills.

June 2013
Economic reports and quarterly corporate earnings generally exceeded expectations, propelling the market higher through the first two months of the second quarter. The S&P 500 gained 1.9% in April and 2.1% in May. Both the S&P 500 and Dow Jones Industrial Average eclipsed record levels several times in May before giving a bit back the last few trading days of the month.

As a result of improving economic conditions and speculation that the Federal Open Market Committee (FOMC) will begin tapering the unprecedented stimulus, interest rates rose dramatically into the end of May. On May 31, the 10-Year US Treasury yielded 2.16%, the highest level in over a year and up from 1.63% recorded on May 2.

A combination of strong corporate earnings and improving economic conditions, domestically and around the globe, has kept stock market valuations at what we believe to be reasonable levels. Forecasts call for continued economic growth helped in large part by central bank stimulus in place around the globe. While we are generally bullish on stocks, we recognize that a dramatic event could trigger a correction. Stock market corrections of 10% or more occur frequently. We continue to maintain a bias towards stocks over bonds as we believe stocks offer the best return potential over time horizons of five years or more. This stance rewarded our clients in 2012 and continues to do so into the first part of 2013.

As interest rates rise, we are taking measures to shorten our fixed income maturities in an effort to preserve principal. This will likely lead to lower interest income over the near term, but should also result in less overall volatility and improved total return for the bond portfolio.

Other News
In our continued effort to improve the level of service you receive, we have upgraded our trust accounting systems. There are many benefits from this change including enhanced reporting capabilities and much improved internet access. Please feel free to contact us should you have questions regarding the new statement formats or if you wish to sign up for web statements.

Thank you!


From 1904 until the 1980s, this safe was used to secure money and important documents. The design of the safe door was unique in that it was actually screwed into the safe with a hand crank. Advertising by the Mosler Safe Company claimed it was dynamite proof. Top photo features the gears of the safe's door.


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