HFG Perspectives: February

February 5, 2014

We all know by now that bull markets tend to take a few steps forward and then give a bit back. While it’s never enjoyable to watch our account balances decline over the shorter term, stock markets gave back a bit in January. While the talking heads on TV might attempt to make us think that the next crisis is at our doorstep—that’s just how the media business works—the decline we’ve been witnessing for the last month has been, if anything, average.

What was not average was stock performance in 2013. Broad market gains of over 30% in a calendar year are anything but average. They are outliers. We’ll take them when we get them, but we shouldn’t expect them.

What changed when the calendar flipped from 2013 to 2014? Frankly, not a lot. The big news, of course, was the gradual tapering of extraordinary support (i.e., quantitative easing) that the Federal Reserve has been providing the economy and markets. It is important to remember, however, that the only thing that is winding down is the extraordinary support offered by the Fed. The more traditional support of extremely low short-term interest rates still remains.

Did much change in the markets or economy on January 1st? Not really. The economy is still growing. Both manufacturing and consumer sectors are advancing. Housing is still recovering. Corporations are still generating record earnings and still have healthy balance sheets. Improvement continues.

There are stresses in the world, but they existed well before the calendar flipped to 2014. Many emerging market currencies have been stressed, and while it has technically moved out of recession, the Eurozone is still grappling with its larger structural issues. At the end of the day, we seem to be in a normal correction, and, in our minds, that is okay.



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