Market Pulse: Still no reason for fear
April 16, 2014
The S&P 500 closed at a two-month low last Friday and the Nasdaq fell 8 percent from its March high. Is the bull market over? Is it time to get out of stocks?
Not so fast. Readers of this column know the selling was expected (see Expect, But Don’t Fear, a Pullback on March 13 and Taking the Opposite View on March 20).
When you expect stocks to retreat then you don’t turn bearish after they fall. Anticipatory timing is better than reactionary timing.
I’ve seen such selling many times over the years, mostly in bull markets that quickly resumed their advance. One reason the bullå will resume is interest rates remain low.
Long-term interest rates have fallen from their recent high just above 3 percent for the benchmark 10-year Treasury, now 2.6 percent. This is why utilities is the year’s best performing sector.
For now, a worry that rising long-term rates will make bonds more attractive and stocks less so is off the table.
Traders moved to the money market, but they won’t stay there long. The alternatives to stocks are unattractive. They were, they are and they will be unattractive for the foreseeable future.
That’s an old story here and the main catalyst for the bull market, as I’ve said again and again. There is no good alternative to stocks.
Dividend stocks have done far better than most for the same reason utilities have been strong. Speaking of anticipation, first-quarter earnings for most S&P 500 stocks will be released over the next few weeks and investors expect a small decline (less than 1 percent) for non-financial companies.
When the year began Wall Street expected a 10-percent increase in S&P earnings this year, but since the first quarter was so weak they now see a rise of 7.5 percent.
If weather alone explains the sluggish start, the economy will accelerate, especially in the second half. If something other than weather played a role, we’ll soon find out. I doubt it.
Expect volatile days ahead, some in reaction to earnings surprises and others due to events overseas, including in Ukraine.
But the bull market is alive and well, in fact even stronger after the recent profit-taking in the riskiest stocks. Expect volatility, yes. But also expect higher prices.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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