Despite an up and down start to 2014, the markets are still bullish. This chart shows the S&P 500 for the past seven (7) years. The past three (3) years were characterized by an uptrend with multiple moderate corrections along the way. 2014 has continued that trend. In January, the market started the year in negative territory, but quickly reversed that trend in February. March was mostly flat. The S&P 500 is currently trading at the upper limits of the current uptrending trough depicted in the chart.
Apollo Wealth Management Portfolios
We are currently 75-90% invested with our aggressive accounts with a mix of junk bond, technology, small cap, income, pharmaceutical, and leisure funds. We are currently 80% invested in our moderate accounts with a mix of junk bond, high-yield municipal bond, floating rate bond, technology, and income funds. Risk management has continued to be difficult in 2014.
The fundamentals of the economy are very weak, and stocks are trading much higher than they should, and yet the artificial liquidity pumped in by the Federal Reserve continues to prop up the markets. The market is addicted to the easy money. Bad news is good news for investors. When bad economic news hits the wire, the markets tend to react to the upside. The Fed began reducing its bond buying program late last year and is generally expected to curtail the current quantitative easing program before the end of 2014. As long as the market continues trending up, we will continue to take advantage of the upward trending markets with a blend of aggressive and conservative funds.
Contrarians believe that when everybody agrees on something, the opposite usually occurs. We are getting to that point where many investors are not only fully invested, but also margined at high rates. Most pundits on the cable networks are bullish, and many forecasters even think we are in the BEGINNING of a 1990’s type bull market. Only a select few economists and market forecasters are bearish.
I lean toward the contrarian view. As the Fed continues to reduce its bond-buying program, the economy should weaken, and the markets should continue to be choppy for the remainder of 2014. Should a significant correction develop, we will take corrective action to protect our clients’ portfolios for excessive losses and wait until the next buying opportunity. For a more in-depth discussion on the current state of the markets, I recommend a newsletter written by Seth Klarman, a well-known money manager.