Happy New Year everyone!
Well, that was quite an unusual December. The Market was up, then down, then even (it finally closed at a slight loss, but only by -0.25%). Oil prices keep dropping, which has been great for consumers in general. The main drawback is that low prices hurt profits of large oil companies. Exxon, for example, is currently the 2nd largest holding of the S&P500 (energy makes up approximately 10% of the index). Therefore, extremely low oil prices can be a drag on the overall market. More information about the S&P 500 index can be found here: http://us.spindices.com/indices/equity/sp-500/
As of the close today (Jan 14th, 2015) the S&P500 is back to where it was in early November of last year. Volatility, measured by the VIX (Volatility Index) has been around 20. We feel that compared to where market volatility has been over the past year, that’s a bit on the high side. However, in the grand scheme of things, it still isn’t very high. It is our opinion that “High” would be in the 30’s and “crazy” would be above 40. In 2008, it actually spiked up to 89! So, the current 20 is “normal” …if there is such a thing.
Sectors have turned back to the defensive: Utilities, healthcare, consumer services and financials. What has us cautious is that these are some of the areas that tend to precede a difficult market. Also, some of the technicals which we monitor are starting to set up like the end of 2007 (danger, Will Robinson). We’re not concerned yet, but we’re focused and ready to act should we need to.
International – the MSCI EAFE (fancy name for the International index) has resumed its move to the downside. In other words, things are not looking up for much of the world. Fortunately, our exposure to them has been greatly reduced for a few months now, which has helped to protect our investors from some of the commotion.
Bonds – who knew they’d be the current “hot market”? No, seriously! A continually cautious Federal Reserve keeping interest rates low seems to be the catalyst (see chart on the left). It may be that interest rates are held this low for much longer than expected. However, once rates do start rising again, the reversal of this trend could be swift.
Fun Fact of the Month: January is National Financial Wellness Month. Are you flexing your financial muscles? If you’re unsure or have questions, please contact us!
Think warm thoughts and hopefully winter will be over before you know it! Have a great January!
Above: 3 Year (Monthly) Chart of the iShares Aggregate Bond Index (AGG)