Monthly Commentary
May 6, 2014
Starts
Bill Henderly, CFA, Nvest Wealth Strategies, Inc.
In life, starting occurs in a variety of forms – fast starts; slow starts. Right starts. Jump starts.
Other beginnings include the running start, and flying start. In business – start up, or start
over. Fresh start. Head start. Even computers have a start page. And, your favorite team
begins each game with a starting line-up. Seems we are always starting.
April was a volatile month for the stock market. The S&P500 managed to eke out a modest
+0.7% gain, with the Dow Jones Industrial Average reaching its first new all-time closing high
in this 5 year old bull market. Yet, 2014 is not off to a fast start. Most investors might call it
a trying (bewildering) start, or slow start. Amazing to us is the flip in relative performance of
growth versus value style stocks during the last 45 days. Even international stocks appear to
be caught in a reversal of fortunes at the same time. Growth style stocks enjoyed a running
start during the 1Q, while value experienced the opposite. After April, growth’s fast start was
entirely erased and one would characterize its recent performance as, …a “crash” (don’t have
a “start” word that applies).
Style
Delivering financial
peace of mind.
April
YTD
Client Objectives
S&P 500
+0.7%
+2.4%
(Stocks/Bonds)
Foreign
+0.7%
+1.1%
20/80
-0.3%
+0.7%
Large Value
+0.3%
+2.6%
Mid Value
-0.5%
+2.7%
35/65
-0.2%
+1.3%
Large Growth
-1.3%
-1.4%
50/50
-0.6%
+0.4%
Small Value
-1.9%
-0.2%
65/35
-0.7%
+0.5%
Mid Growth
-3.3%
-2.1%
80/20
-1.0%
+0.5%
Small Growth
-5.6%
-5.4%
95/5
-1.1%
+0.4%
April
YTD
Growth needs a restart, which we expect will occur. Growth may not close the gap in the
near-term, but it is anticipated as we move further into the year. Client portfolios also
experienced an attractive start this year; and then languished with a lingering winter
slowdown and the Russia/Ukraine events. Meantime, interest rates remain low despite
ongoing Fed tapering, translating to OK bond performance as rising geopolitical concerns
again make them the desirable safe-haven asset class. As you know, interest rates can remain
low for a while due to QE policies, ZIRP (zero interest rate policies), and/or flight-to-safety
trades. QE & ZIRP may be coming to an end, while the flight-to-safety trade exists due to
geopolitical concerns.
CONTACT US:
10268 Sawmill Parkway
Powell, Ohio 43065
614.389.4646
WWW.NVESTWEALTH.COM
Let’s try synonyms for “start”: onset; takeoff; outset; origin; inception; dawning; or square
one. At the onset of the 2Q, we note the recently announced economic stats matched the
long winter experience – cold, chilly, and slow moving, producing a +0.1% quarterly increase.
That is very slow compared to any quarter last year or thus far in this recovery. The US
economy is expected to bounce back from the blah of winter. We already see early spring
statistics that support a rebound. Improving weather and economic statistics are critical to
providing an economic backdrop for continued growth of company earnings (the fuel for
upward moving stock prices). The stock and bond markets, both US and foreign, are data
dependent at this point. They need proof the economy will rebound and not slip into a
recession (negative GDP growth).
In the near term – probably for the second quarter and through the balance of summer – the
market may appear to be without momentum. That means the market may fail to make
much directional progress. And, investor sentiment will remain generally complacent. cont.>
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Starts -CONTINUEDInvestors remain worried because 1) the market experienced a strong +32% gain in 2013, which creates some
worry today that the market is ahead of fundamentals; 2) geopolitical worries about Russia/Ukraine create
drawdown market risk; and 3) mid-term elections are only months away. These are short-sighted concerns.
Refocus instead on a number of big positives that exist, which support current stock values and aid reason for the
advance to continue longer term. Unemployment is dropping, indicating the economy is rebounding. Even the
Federal Reserve acknowledged it by stating the winter-blahs would spring into continued economic recovery with
low inflation. And, banks are making new loans to consumers and businesses at the fastest pace since the debt
crisis in 2007. Really big: businesses are buying other companies (mergers and acquisitions) at the fastest pace
ever – 154 deals totaling $1.5 trillion in the last 90 days. In essence, it means that confidence continues to
improve. It also means a better economy; lots of $$ to invest; attractive values and opportunities (even tax
savings); and accommodative monetary policy (low interest rates). Also, the synchronized global recovery is still
progressing. These are important reasons for investors to maintain a longer-term positive expectation for stocks.
Antonyms for “start”: ending; result; close; finish; terminate; conclusion; or consequence. We expect 2014 will
provide a positive stock market performance experience. We expect 2014 will lead investors to enjoy the current
bull market reaching its 6th birthday next year. Likely, the spring/summer season may experience some volatility
similar to early this year; even what feels like directionless choppiness. Investor anxiety is likely, and the markets
may appear rewardingly dull. Maybe even feel like they lack a clear conviction for successful investing. Yet, we
know from experience that long-term investors focused on their goals (save regularly and invest for the long term)
will prove wise; they will enjoy attractive performance as a reward.
Ultimate antonym for “start” – STOP!!! [Expect a fresh start.]
Stay Calm. It Pays!
If tensions between Russia and Ukraine turn sharply worse, stocks could experience a setback as investors push the
panic button. Yet, investors should understand history from previous international crises. History shows the stock
market recovers soon after the event begins, and within several months is higher than where it stood before a
crisis erupted. Before the point of greatest tension and bleak outcome, the stock market is hindered in its advance
as many investors curtail and/or reduce exposure to stocks because of fear (of an unknown). Once the dreaded
conflict occurs, the market recovers and rallies higher. A study of 51 notable crises since 1900 reveal the stock
market lost an average -7%. Six months later, the DJIA was higher than where it stood before the outbreak of the
crisis, by an average of +9%. For minor skirmishes, the advance was small, at +3% (Suez Canal, 1956); or +16%
on two more worrisome instances (JFK assassination, 1963; Iraq invaded Kuwait, 1990). Of course, the greater the
fear about the unknown, the greater the magnitude of the swing down/up, before and after. The best course of
action: Remain calm and don’t sell. If you are bold, you could even use a crisis as a buying opportunity.
Nvest Wealth Strategies, Inc. |
Delivering financial peace of mind.
www.nvestwealth.com
Ph: 614.389.4646
10268 Sawmill Parkway
Fax: 614.389.4646
Powell, Ohio 43065
Email: [email protected]
Visit us on the web for weekly updates: www.nvestwealth.com/blog
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