We’re at the end of the first quarter and it’s been an action-packed one with the tensions in Crimea, a too long and frigid winter, bad news about China’s economy and a new Federal Reserve Chairman—just to name a few disruptions. But on a positive note, the S&P 500 reached all-time highs and is poised to the end quarter on a high note—its fifth straight quarterly rise.
As we rewind to one year ago, this index was up 10 percent in the same time period, only to end on a 29.6% rise for the year.
But overall, the market hasn’t acted that well for the first three months and many investors haven’t been feeling too enthusiastic about investing in it or in their financial lives. Are you one of them? If so, you’re probably asking, what’s an investor to do in times like this?
Just Hang Tight
It may be “one of those years.”
BMO Capital Markets strategist Brian Belski recently said, “2014 will represent the start of a transitional period where investors depend less on quantitative easing by the Fed, and more on traditional fundamentals such as cash flow and earnings. Given that an entire generation of investors has built careers the past 10 to 15 years around the notion that the Fed and low rates drive stock performance — not fundamentals — periods of increased volatility were going to inevitably coincide with any change in direction or tone from the Fed.”
Yes, volatility may be driving this year’s market as compared to other ones and some retail investors have responded by expressing bearish sentiments in recent investor surveys.
Investors Express Pessimism
In the latest weekly AAII Sentiment survey, its neutral sentiment rose to its greatest level last seen on April 14, 2005 (40.2%) while optimism (a bullish sentiment for prices increases) declined 5.6 percent to 31.2%. Pessimism, with a bearish sentiment (stock prices will fall), jumped to 28.6%–early February levels.
But there’s more as the Consumer Federation of America has new research showing just a third of Americans are feeling prepared as they look to their long-term financial future while 50 percent of respondents in a MONEY survey admitted they live paycheck to paycheck. There’s also the 60 percent who felt they didn’t have adequate money should an emergency arise.
Not All Doom and Gloom
We’re not here to scare you, but to show you if you’re feeling uneasy, you’re not alone. We do think you should turn off this noise, keep your eyes on the prize and look to the long term.
Fortunately market professionals don’t see a completely gloomy 2014; you shouldn’t either.
Goldman Sachs gave the S&P500 a 1,900 year-end figure and 2,100 for 2015. On Friday, March 14, 2014 the S&P 500 closed at 1,841 and on the last day of the quarter, it appears utilities (8.3%) and health care (5.1%) are the big increasing winners these last three months while technology, financials and materials rose around 2%.
The Standard & Poor’s MidCap 400 index for this quarter is up about 2.6%.
And for some investors, they’ve decided to try and broaden their investing horizons. Some are looking at different stocks including midsize U.S. stocks while others have been exploring defensive sectors including telecommunications services.
Stocks will once again rise and this should make you feel a little secure. In the second quarter, investors will look for stronger economic data and declining geopolitical risks in the Ukraine as well as other venues, looking to stocks to hold onto its bull market.
And as we like to continually say, until then, invest in the long term and the returns will follow.