Maybe It's Different?

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2014 Market Performance Review (as of 5/29/2014)

            S&P 500:       

YTD Price Change:                                           4.25%

Qtr. to date:                                                     1.29%

Current Dividend Yield:                                    1.97%

            Global equities ex-US:

                        Developed Markets (EAFE) YTD:                     1.80%

                        Emerging Markets (MSCI Index) YTD:                        3.54%

            Bonds (Barclays US Aggregate Index):

                        Total Return YTD:                                             4.00%

            Interest Rate Change (10 Yr. Treasury Yield):        -18.32%

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As Spring transitions to Summer, the proverbial stock market proverb “sell in May and go away” seems to be more like “buy in May and go higher”.  Not only are we seeing stocks hold up considerably well in 2014, as this is being written, the 10-year Treasury bond is experiencing a price rally (resulting in a drop in yield) not seen since this same time last year. Over the last few years, any information or data from the US Economy that hinted of the Federal Reserve using more quantitative easing was welcomed with strong stock price increases.  The conventional thinking behind this was; lower interest rates will inevitably create earnings growth, healthy inflation and a growing economy.  In actuality, none of those three wishes have come to fruition.

The challenge in today’s market environment is to decipher what in fact is the basis or motivation that is now creating the buying (or simply lack of selling) by institutions.  In fact, Q1 GDP was revised to -1.0%.  Yes, that is a negative number.  Negative GDP for a quarter is considered contraction.  Negative GDP for two consecutive quarters is called a recession.  At this point, all equity markets seem to think the “R” word is not a possibility.  But with the 10-year note touching a 2.4% yield, these two asset categories are chirping different songs.

Hedge Fund Manager Doug Kass recently wrote an article titled “I don’t know”.  His point was to simply state that while he has opinions and is acting in the best interest of his clients, he is not able to specifically identify the reasons the public asset markets are behaving the way they are. 

While we endeavor to avoid being “bearish” or “bullish,” we are not immune from having a gut-feeling and a researching bias that stems from our many years of experience.  Financial Analyst Dick Arms was recently quoted in a research article regarding the eerie attributes of the current stock market,

           

“There are times when the market gives the impression it is fading into nothingness.  Volume becomes very low, trading ranges become very small, volatility becomes very minimal.  Looking back at history, when that happens, it is almost always a sign of a market high point.”

Recognizing our concerned bias, we remain vigilant and aware of our holdings, exposure and plans.