July 15, 2014
Market Summary (Second Quarter 2014)
During the second quarter of 2014, the market shook off its subpar start to 2014 and climbed to new highs. Well, at least some of the market did. The S&P 500 (made up of large company stocks) has steadily climbed to new highs since the beginning of February (with the exception of a short correction in April). Conversely, the Russell 2000 (made up of small company stocks) declined sharply from March through mid-May, then trended up through June. In July, the Russell 2000 has declined to the bottom of its uptrend line.
Generally speaking, strong markets occur when small company stocks outperform large company stocks. If the Russell 2000 breaks its uptrend and begins trending down, this may signal weakness in the overall market and result in a correction. If, on the other hand, the Russell 2000 begins to outperform the S&P 500, the market could be ready to continue its bullish trend.
Junk bond funds and high-yield municipal funds have continued trending up with very little volatility but have shown some weakness in July. Energy Funds have been trending up at a higher rate than the S&P 500 since the beginning of February.
Apollo Wealth Management Portfolios
Apollo Wealth Management portfolios are currently 80-90% invested in junk bond funds, high-yield municipal bond funds, income funds, small company funds, and energy funds. Today was another down day for the Russell 2000 index, so our small company funds are on our sell watch list. The energy sector, junk bond funds, high-yield municipal bond funds, and income funds continue to trend up.
The Federal Reserve recently announced that it anticipates concluding its bond-buying program in October 2014, and many analysts believe the Fed will begin raising interest rates a year from now. Historically, stocks have not performed well after the conclusion of bond-buying programs and during rising interest rate environments. We will be watching the market very carefully over the next several months in anticipation of these events. Capital preservation is our primary goal, and we will not stay fully invested if the market begins to decline.