Wednesday, June 10, 2015

Watching Paint Dry

The markets continue to plod along on their well-established ways. After a negative start to 2015, the market indices inched to a 3% gain for 2015 only to lose that and retreat to a virtual standstill. According to Bespoke Investments, the S&P 500 has never hovered this close to its beginning of the year starting point this far into the year. There is plenty happening in finance and world economics. None of this can give control to bulls or bears.

On one count, we should be grateful to merely tread water. Stocks have ample reasons to slide. The US economy declined .75% during the first quarter. It only takes two quarters of negative GDP growth to be classified as a recession. Interest rates are rising on vital things like home mortgages. The Fed is expected to hike interest rates soon. Gas prices began to rise in March and consumers’ cost savings from this are dwindling. Looking off shore, the international picture is not rosier as deep concerns exist in Europe and China.

Yet, through all of these factors, stock valuations remain high. The markets are in the vicinity of their all time highs. Furthermore, it is ominous that nearly four years have elapsed since the last 10% market correction.

This fact does not lend anything to forecasting. Bespoke Investments tells us the last time the market rose over three years in uninterrupted fashion was in 1994. If you would have sold at that point, you would have missed out on another 105% gain over the next three years and nine months. Therefore, we can’t predict a correction simply because we haven’t had one for a while.

During this quarter, it became apparent that we needed to overhaul client portfolios by changing the stocks that our clients hold. Stocks that are weak threaten investment portfolios because they dampen potential returns from other superior investments. Our strategy this quarter has been to reduce our holdings. We are rebuilding our portfolios by using companies with the brightest prospects.

As we move toward the midpoint of 2015 and the July earnings reports, the characteristics of Amazon, Accenture, CF Industries, Eaton, and Gilead all look to be rewarded. There can be lots of standout performers regardless of the market’s condition. Carefully selected investments such as these can overcome our flat market; a market that seems pinned to current levels. 

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