Market Update 1st Quarter 2014
Holding its ground. That’s the best way to describe the 1st quarter. After a year of great returns, the market has been moving sideways for some time, and could continue to so. In fact, many people (myself included) predicted we would see some correction in stock prices. So, while the market did experience a downward dive in January of around 6%, it quickly snapped back.
People spent most of this 1st quarter hibernating indoors. The cold weather had a negative effect on lots of things, including employment, retailers, as well as the housing market.
Now that spring is here, however, we are starting to see more encouraging reports. March unemployment numbers showed some improvement. Just enough to keep the economy going, but not enough to instill fears of interest rates rising.
Janet Yellen is the new Fed Chair. As such she gave the markets a little shake. While confirming the Fed’s commitment to winding down the Quantitative Easing (QE) program, she also remarked that interest rates could rise 6 months after the program ends. This rattled the markets. In subsequent talks, she took the opportunity to temper those comments, and put the financial markets at ease, by explaining that rising rates would be dependent on the economic data.
The last highlight of the 1st quarter featured the upheaval in Russia. And while it seems unlikely that any military action will be taken, the dispute may continue to linger for some time. This will more adversely impact Europe on the economic front, than the United States.
The S&P; 500 returned 1.3% while the Dow Jones Industrial Average was up .7%. On a valuation basis the S&P; 500 looks fairly valued at 16x 2014 earnings, and the larger stocks in the Dow have a more compelling valuation at 13.6x. Our focus in the first quarter was to look for company names that have not performed well in the short term, but that we like longer term. Our average portfolio has a dividend yield of 2.6%, versus 1.6% for the S&P; 500 and 2.2% for the Dow.