16 Jul 2013 Dodge & Cox - Q2 2013 Commentary ( Portfolio )
U.S. equity markets rose to record highs during the second quarter, although stock prices retreated and interest rates increased near quarter end. Ben Bernanke, the Chairman of the Federal Reserve (the Fed), indicated that the central bank could wind down its bond buying program over the next year if it sees sustained economic improvement. Despite the negative market reaction to this announcement, we believe the longterm outlook for equities is encouraging as the Fed’s possible moderation of stimulus would be in response to further improvement in the economy. Recent economic statistics suggest that employment growth is continuing, housing activity is accelerating, and the U.S. economy is growing modestly.

Higher prices of homes and other assets have increased consumer wealth and confidence in the United States. These factors can stimulate household spending and contribute to production and employment gains. Bond yields have risen from historic lows and should normalize as employment and the economy improve. Businesses across the United States continue to grow earnings and cash flow. We acknowledge that challenges for the global economy remain, including slowing growth in China and other emerging markets, unrest in the Middle East and Brazil, and declining fiscal spending in the United States and abroad. Nevertheless, we remain optimistic about the long-term prospects for corporate earnings growth. We believe the Fund’s portfolio is well positioned to provide attractive absolute and relative returns over the long term.