So far, 2014 has turned out to be a lot of nothing to write home about. Last year, the S&P 500 ended just below 1850 (see chart below). For most of the year, we’ve been stuck bouncing around in a narrow range (indicated by the horizontal blue lines).
Five months is a long time to not make any progress, especially after the exceptional gains made through most of last year. When you are a Trend Follower, like we are, this is especially frustrating. We need direction and movement to make decisions. And while we saw an upward bias from March to late May, we were basically stuck in a no-man’s land.
Finally, in late May, we broke out of that narrow range and are now seeing positive upward movement. We’ve been positioned for this upward movement, and are happy to see patience paying off!
On a completely unexpected note, so far this year, bonds have actually been pretty good. We’ve added them back into some portfolios, with caution. Why still caution in bonds? Looking into the past tells us that interest rates are likely going to rise. And when they do, this will affect bond prices. That could spell trouble for investors with large bonds holdings. We don’t like trouble, so we’re cautious until we see a change in direction.
Tip of the Month: Don’t confuse the stock market with the economy. While there is a relationship between the two, they are not the same thing. Just because news coming from the media is negative, doesn’t mean the stock market is falling apart. At the end of the day, it’s just the number of buyers vs. the number of sellers. And the majority wins.