February 2015 Monthly Outlook – “I’ll be back”

One of the commercials during the Super Bowl on Sunday night was for yet another sequel of the Terminator movie.

Yes, Arnold Schwarzenegger is in it and yes he says “I’ll be baak”

However, the “I’ll be baak” I am watching is the return of volatility to the financial markets. In January 2015 the S&P 500 declined 3.1%, but out of the 20 trading days in the month there were 8 days where the index moved >1% up or down.  In the bond market, the volatility was even greater, with the US 10 year Treasury experiencing 16 daily swings greater than 1% plus or minus.  Perhaps more importantly the US 10 year Treasury ended the month at 1.67% (down from 2.17% on 12-31-14) the lowest closing level we have seen since 6/12/12.  (source: Yahoo Finance)

Several factors contributed to the volatility during January.  (1) the continued decline in oil prices, (2) increasing concern about slowing foreign economic growth and its impact on U.S. multinational company earnings, (3) continuing geo-political concerns including Russia/Ukraine, Greece elections and the death of the long serving King of Saudi Arabia.

Going forward there are more tailwinds than headwinds for the U.S. economy. On balance I feel the tailwinds outweigh the headwinds and U.S. economic growth will continue. However, the headwinds will likely keep volatility at a higher level as any turbulence on the economic front will likely spill over into the financial markets.

Feb 2015 Mthly Outlook

Source:  Cornerstone Macro

On the investment front, I am watching the 1,972 level on the S&P 500.  If the equity market breaks below that level then I think a decline into the 1,900 -1,920 range has begun.  I am also watching the 10 year US Treasury rate. A break below 1.65% would open up the potential for further declines into the 1.45% range.  While lower interest rates are beneficial for mortgage rates, continued declines in the 10 year US Treasury also signal concern in the market as these securities are considered relatively risk-free.  Generally, when investors are concerned they sell risk-assets like stocks and buy safe assets like US Treasuries.

You may have heard of the old Wall Street axiom “ so goes January, so goes the year” colloquially called the January Barometer. If that holds true then 2015 will be a down year for stocks.  Below are some interesting statistics (courtesy of Jeff Saut @ Raymond James) in response the 2015 January Barometer being negative.

“Well, since World War II the SPX has never suffered a loss in the third year of the presidential cycle; and, this is the third year of said cycle. Moreover, January was a down month in 2014, and the equity markets still turned in a decent performance. Then there is the “Rule of 5’s.” To wit, since 1885 there have been 13 years ending in the number 5. In 12 of those 13 years the equity markets have been up. Or how about this, since its inception there have been seven instances where the U.S. Dollar Index has rallied more than 10% in a year, like it did in 2014, and in the following year the SPX was up every time. Further, since 1962 there have been only four occurrences where the yield on the S&P 500 has been greater than the yield on the 10-year T’note like happened in mid-January 2015. In the three previous instances the SPX’s performance three months later has shown a median gain of 9.5%.”

Many of these axioms have spotty track records so I don’t place much emphasis on them, but I do find them interesting!

I continue to regularly monitor the economy and financial markets and will let you know if any adjustments to our investment approach are warranted.  Please don’t hesitate to call if you have any questions or concerns.

As always, I appreciate your continued confidence in me. Please remember whether you or someone you know needs help on financial matters small or large, please call me—if I can’t help them, I’ll refer them to someone who can.

February Calendar of Events   (comments and additions for future months are always welcome)

  • February is Black History Month.  Let’s all strive for understanding and acceptance for people of all colors.

February  2nd                   Groundhog Day – damn he saw his shadow (:

February 14th                   Valentine’s Day

February 16th                   Presidents Day

February 17th                  Mardi Gras

February 18th                   Ash Wednesday

February 19th                 Chinese New Year – the Year of the Sheep

Sources:  Cornerstone Marco, Raymond James, Yahoo Finance.

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

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