For U.S. investors, it was a good six months to just stay home -- and to start imagining the world weaned off cheap Federal Reserve money.
Major Wall Street stock indexes posted double-digit returns in the first half, buttressed by a continuing, though slow, economic expansion.
The U.S. market held on to most of its gains despite a surge in long-term interest rates, as the Fed began to signal a readiness to pull back from its massive financial-stimulus program.
The Dow Jones industrial average ended Friday down 114.89 points, or 0.8%, to 14,909.60, but was up 1,805 points, or 13.8%, in the first half.
Broader indexes also advanced in the first half as the bull market entered its fifth year. The Standard & Poor's 500 index, a benchmark for many retirement savings plans, rose 12.6%. The Russell 2000 index of small-company shares rallied 15.1%.
But American investors who own foreign stocks mostly scored lower returns in the half -- or suffered losses -- as growth fears rocked emerging markets and much of Europe remained mired in recession.
The average emerging-market stock mutual fund slid 8.8% year-to-date through Thursday, according to Morningstar Inc.
And most bond investors took relatively small hits, as the jump in market interest rates depressed the value of older fixed-rate bonds. The yield on the 10-year U.S. Treasury note, a benchmark for mortgages and other long-term interest rates, ended Friday at 2.49%, after reaching a two-year high of 2.61% on Tuesday.
The T-note yield has soared nearly a full percentage point from 1.63% in early May.
The reversal in yields fueled losses in most bond mutual fund categories. The Pimco Total Return Bond fund, the world's largest, lost about 3% in the last six months as measured by "total return," meaning change in principal value plus interest income. The fund was up 10.4% in 2012.
Stocks and bonds worldwide had largely been sailing along until mid-May, when top Fed officials began hinting that an improving U.S. economy could eventually mean a cutback in the central bank's stimulus program. To help keep interest rates down and prop up the economy, the Fed has been buying $85 billion a month in Treasury and mortgage bonds.
After their June 19 meeting, Fed officials confirmed that they would seek to reduce bond purchases at some point, if the economy continued to expand and unemployment continued to decline.
Although the decision wasn't a surprise, stocks, bonds and commodities slumped as some investors sold. The Dow tumbled 4.3% over four sessions, and bond yields rocketed.
Gold plummeted deeper into a bear market, as the possibility of a pullback in Fed stimulus dimmed gold bugs' fears of rampant inflation ahead. Gold futures ended the half at $1,223.80 an ounce, near a three-year low and down 27% in six months.
But U.S. stocks quickly revived this week as bargain-hunters stepped back in. At Friday's close the Dow was off a modest 3.2% from its record closing high of 15,409.39 on May 28.
Market bulls believe investors will increasingly see the idea of reduced Fed stimulus as a positive, because it would indicate the economy was on sound footing.
The transition to that mind-set, however, is likely to be rocky, many analysts warn.
"We see a summer of uncertainty," said Barry Knapp, head of equity strategy at Barclays Capital in New York. He expects U.S. stocks overall to lose as much as 10% in the next few months from their recent peaks, before stabilizing.
Many bulls are betting that U.S. stocks will eventually draw money from other assets, particularly bonds, if long-term interest rates continue to creep higher.
Americans have pumped unprecedented sums into bonds since 2008, seeking a haven. But rising interest rates could continue to pull down bond values.
"I think a lot of people did not believe they could lose money in bond funds," said Brian Belski, chief investment strategist at BMO Capital Markets in New York.