US equity market had a slow start in 2014 Q1, with S&P 500 Index (SPX) up 1.8% while Dow Jones Industrial Average (DJIA) down 0.2% for the quarter. Many international equity markets performed significantly better than US, such as Egypt and Indonesia, both of which went up more than 20% during the first three months of the year.
In my opinion, US and global economies may continue their slow but steady growth for the next several months, and there is no bear market in sight.
However, as one can see from the graph below, US equity market (blue line) is ahead of average earning growth (red line). Coupled with other seasonal and liquidity factors, investors should expect a bumpy ride for the next several months. I have no way of knowing this for sure, but we should see good year end rally to reward patient investors.
There is no way to tell exactly when the market will start a major correction, and the market could potentially go up another 5% to 10% from current level. Therefore, it is very important to remain invested and stay diversified, not to bet on certain sectors, styles, or a specific types of stocks.
Our portfolios currently hold near 200 securities, diversified across equity, fixed Income, and REIT asset classes, covering all 10 major sectors: consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, telecommunication services, and utilities).
With increasing volatility, regardless valuations and growth potentials, some stocks will be inevitably sold off harder than the others due to fear and greed of human nature.
I don’t have a crystal ball and can’t predict which stocks will be the victims during the coming correction. That said, when mispricing opportunities of individual stocks present themselves in the coming market correction, our portfolios will reallocate investment capital quickly and optimally by selling expensive stocks to buy cheaper stocks to potentially reap the benefits of market correction.
DISCLAIMER: The investments discussed are held in client accounts as of March 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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