If you looked only at the starting and ending value of the markets for the first quarter in 2014, you might assume that it was a calm 3-months that consisted of sideways movement, and in the end provided a small positive return; the S&P 500 gained 1.3% in the first quarter as it reached a new bull market high. However, if you look closer at the fluctuations that the markets experienced, it would not be inaccurate to instead describe them as frenzied.
The S&P 500 started off 2014 by reaching new highs, pulled back a couple weeks later, but then rebounded in February. The Dow Jones experienced 13 trading days of 100 point gains or more, as well as 10 days of -100 point losses. In total, the Dow Jones navigated 5601 points based on closing prices, but still finished the quarter within 120 points of its 2014 starting value.
So what does all this volatility tell us? The macroeconomic and technical data confirms that we remain in a bull market which still has room to run up. Some of the bullishness that we continue to see is:
• Advisors’ sentiment shows the lowest percentage of bears since 1987.
• Margin debt as a percentage of GDP hit new highs in every month in the 1st quarter, and passed the previous peak reached in 2007.
• More IPO’s were launched than any quarter since early 2000; the final quarter of the dot-com bubble.
Sounds good, right? While excessive bullish sentiment, high margin debt, and overvaluation don’t trigger the end of a bull market, they can be indications that the bull market is aging. Our clients’ portfolio allocations remain in line with our positive outlook for 2014, but also include a sizable portion invested in defensive sectors. We continue to closely watch for any bearish divergences and are prepared to take more defensive actions should the data warrant it.
Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions? Call me to schedule a free review of your current investment portfolio – 913.402.6099.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.