After a year like 2013 stocks deserve a little breather, and that’s exactly what they got in January. Stocks (S&P 500) ended the month down -3.5%, while bonds (Barclays Aggregate Bond Index) posted a 1.5% gain. Last year stocks were the place to be, and bonds were the red-headed step child. But a one month time frame really isn’t much to get worked up about in the investing world.
A stock market correction wouldn’t be surprising following last year’s fairly smooth run-up, but we’re nowhere near a 10% drop from the most recent peak. And frankly we would welcome a correction because it’s healthy for the overall market, and it presents buying opportunities at the portfolio level and at the individual fund level.
In 2013 the bulk of the trading I did was concentrated on trimming back domestic stocks with massive gains and buying into the asset classes that were struggling, like bonds and commodities. Hopefully we’ll have some buying opportunities on the stock side of the portfolios in 2014.
Historically the S&P 500 experiences a technical correction (decline of 10% from peak) every 18 months, so we’re overdue. It’s good to be reminded that investing in the stock market is not like riding an elevator, but rather a roller coaster. It’s exciting and scary at the same time, and you’re glad you got on in the long-run. Not that anyone who was invested in 2008 needs reminding!
The Fed’s tapering program – a gradual reduction in monthly bond purchases – has rattled the domestic and international markets, but it is necessary action that is positive news in the long-term. The U.S. economy is growing at a pace of sustainability again so it was time for the government to slow the amount of capital being injected into the system so that we can learn to walk on our own again.
As always, we’ll be closely monitoring your portfolio and looking for opportunities to buy low and sell high.
–Mike Minter, CFP®, CFS®