UPAL Market Commentary February 2014

Did January Set the Stage for the 2014 Market?

In January, equity markets fell, as investors scurried to the exits by prospects of 

• slowing growth in China
• mixed corporate earnings reports, especially among large U.S. and European companies
• slowing pace of factory orders
• concerns about jobs, job growth and unemployment claims
• deepening balance of payments in other countries, both developed and developing

Hardest hit were emerging markets. 

While stocks hit the skids, Treasuries rallied as investors sought refuge in perceived less risky asset classes, such as government bonds.

With the noteworthy exception of emerging country credit, which sold off concurrent with equity and local currency markets, declining rates boosted returns across bond markets. Other key market sectors were mixed. Commodities declined as energy prices dropped on the weaker than anticipated growth prospects. In reaction to investors’ doubts and market uncertainty, gold prices rose, but remain valued substantially lower than a year ago.

The question now is…

Did January set the stage for 2014, or will stocks recover and resume their upward momentum? Many commentators and market analysts predict that January foretells lower expectations for stock performance and an improved outlook for higher-quality, investment-grade bonds. Certainly January’s market performance is indicative of such predictions. It is also critically important to focus on the Fed’s new Chair and newly-activated stimulus tapering policy and whether the Fed will back-off on its policy in light of equity performance in January or stay its course. Most market watchers expect the Fed to continue its pullback from the monetary stimulus, even as the central banks of other countries (most of which are worse off than the U.S.) continue or increase stimulus measures in an effort to bolster their economies. It seems likely that short-term interest rates will remain low, at least for the near-term, foreseeable future.

Focus & stay disciplined.

In such a volatile market, it is best practice for investors to focus on and pursue a disciplined long-term approach toward their portfolios through alignment with their personal investment goals with thoughtful diversification of asset classes. Investors should always periodically evaluate holdings as market performance invariably causes shifts in allocation elections which skew actual holdings resulting in asset allocation imbalance. It is important to long-term performance and achieving investment goals for investors to re-align portfolios to intended positions. This rough start to the year gives investors a chance to address these concerns and take action.

For assistance with your personalized asset allocation plan, contact UPAL at 918-747-5585.