Another quarter, another gain. Seemingly in defiance of the slow-growth economy, and in the face of potentially higher interest rates from the Federal Reserve, most stocks continued their advance during the first quarter of 2015. For the ninth straight quarter, the S&P 500 index posted a positive return, this time rising a modest 0.95 percent. Repeating the pattern of the previous quarter, small caps, as measured by the Russell 2000 index, performed even better as they moved up 4.32 percent. For the first time since the dot-com bubble burst in 2000, the Nasdaq Composite Index advanced past the 5,000 level, although the index settled a bit lower by the end of the quarter.

As is par for the course, gains in the markets didn’t come without hiccups along the way. Many investors were speculating that a correction was just around the corner. The markets were generally volatile in January, up sharply in February and volatile again in March.

Nevertheless, the quarter’s gains were broad-based as most sectors, market-cap ranges and style categories were in positive territory. Not wanting to be left out, bond markets advanced with the intermediate-term Barclays Capital U.S. Aggregate Bond Index gaining 1.61 percent and the long-term Barclays U.S. 20+ Year Treasury Bond Index rising 4.19 percent.

Overseas, European and Japanese stocks also posted strong gains for the most part. Emerging markets performed with less consistency -- China, India, Korea and Taiwan generally did well, while Latin America struggled. The strengthening U.S. dollar has had a mixed impact internationally -- boosting trade, but making dollar-denominated debt more expensive. The debt issue is less of a problem today, however, because emerging-market bonds are increasingly being denominated in local currencies.

After several years of sharply rising stock prices and slow economic growth, there’s no question that valuations on most U.S. companies are high. Nor is there any denying that this situation is making the job of portfolio management more challenging. As described earlier, we’re now in a high-degree-of-difficulty environment. The easy money has already been made.

Consider these examples at two ends of the investment spectrum: An investor could buy a U.S. tech company with a strong, consistent growth rate at an expensive price-to-earnings multiple. Or the investor could buy a Russian oil company with an attractive dividend yield and a low price-to-book value. Which would you choose? Do you prefer the predictability of the U.S. tech company with the high valuation, or the substantial dividend income from the Russian oil company that’s exposed to significant geopolitical risks?

The reality is that we aren’t faced with just two alternatives. But the examples show the types of complicated risk/reward trade-offs that exist in the current market environment. In addition, the bull run in the S&P 500 has gone on without a correction of 10 percent or more for about three and a half years, which is two years longer than the average bull market. As a result, I believe now is a time for caution.

While I don’t think that most investors can effectively move in and out of the markets, a somewhat higher-than-normal cash position might be warranted for more conservative investors. And in an era in which markets are often dominated by speculative trend-following, I think it’s especially important for portfolio managers to really understand the companies in which they’re invested. This has always been our focus at Wasatch Advisors.

I’ve said before that mild increases in interest rates would help people at or near retirement who are currently unable to generate reasonable levels of income on their lower-risk investments. In addition, higher interest rates would encourage a healthier credit environment in which more borrowers would have access to capital and lenders would have the potential to receive fair returns.

Now that the Fed has signaled a rate hike for later this year, my outlook is for a reversion to normalcy. My hope is that this will come gradually, which may allow us to work off the excesses in the stock and bond markets without major downturns. But again, the end game is especially difficult to predict because we haven’t been here before and we don’t know the nature of the dragons that may appear.