October 1, 2014
Market Summary (Third Quarter 2014)
The third quarter of 2014 was generally positive for the stock markets, but there are some chinks in the armor. The tech-heavy Nasdaq lead the charge gaining 5.45% for the quarter, while the large-company S&P 500 gained only 1.14%. However, the small-cap index, Russell 2000 continued its decline this year, losing 6.00% for the quarter.
As I stated in my last newsletter, I become concerned when large-cap stocks outperform small cap stocks, which is currently the case. Small-cap stocks and large cap stocks cannot continue to diverge forever. Soon, one of those trends is going to win out. The S&P 500 has weakened somewhat during the past month, but it would have to drop another 3-4% to reverse its current uptrend. And even the Russell 2000 is trending up when evaluated over the past five years, so for now the bulls are still in control of this market.
Apollo Wealth Management Portfolios
Apollo Wealth Management portfolios are currently 80-100% invested in a mixture of junk bond, high-yield municipal bond, large company, energy, and real estate mutual funds. Real estate and energy sectors and junk bond funds have trended down lately, so we will be watching those funds closely. High-yield municipal bond funds have continued their long uptrend.
Although the bulls are currently in control of the stock market, the number of sectors trending up has begun to narrow. The Federal Reserve has continued to reduce its bond-buying program this year, and it is believed the Fed will begin raising interest rates next year. Historically, stocks have not performed well after the conclusion of bond-buying programs and during rising interest rate environments. World conflicts have not had much of an effect on the market, but that could change if the market weakens or conflicts worsen.
There are many reasons to be concerned about the market, but as long as the markets are advancing, we will stay invested. But, there are some warning signs in place, and we will continue to watch the markets very carefully for signs that the advance is over. As always, capital preservation is our primary goal, and we will not stay fully invested if the market declines significantly.