The Old Adage

iStock_000017046890XSmall - past and futureYou may have heard the old adage, “as January goes so does the market for the year.” We all hope this proves to be true this year, especially with how the equity indexes kicked off this year. But what is really ahead? Let’s go back for a moment and review what has happened, is happening now, and what we think will happen moving forward.

So what happened? Going into the 4th quarter of last year the market was totally focused on the election, its result, and the year-end Fiscal Cliff. The election occurred, the market came to terms with the winner, and the focus was put on Congress and their willingness to do business. By the year-end Congress bought more time and dealt with just enough issues to let the market know they were willing to face these problems and then kicked the rest down the road to March 2013.

What we did for our clients’ portfolios in early fall last year was move more to a defensive position to ride out all the noise and volatility. In late December, we began to move back into equity positions.

The market has taken off as the days of January roll into February. This can be accredited to the fact that Congress did not drop the ball totally, consumers were feeling positive through the holidays, real estate is slowly recovering, and China with other emerging markets are showing signs of recovery.

But, as we watch this year get underway, we cannot help but see several issues for the upcoming months that are concerns for us. First, over the last two weeks individual consumers have flooded the market with cash taken from the sidelines and bonds, and have redirected those assets towards equities. While this is good thing, it is also a potential warning, because when the” Common Man” begins to invest in equities then it might just be time to look for an equity pull-back. Second, over the last several weeks the 10-year treasury rate has been on the move upward. Not a huge move, but an upward movement and with that bond holders are beginning to wonder if it is time to move to equities or a more higher risk bonds. Third, Congress still must deal with some very tough issues and they have again set March- April deadlines for resolutions. We believe the market believes they will do something; HOWEVER, we all know Congress is fully capable of dropping the ball and that could result in a market sell-off.

So what does this all mean and what are we doing to prepare for opportunities that are ahead?

We began the process of adding to the equity side of the portfolio in December and have continued this through January. New positions in emerging markets, global asset allocations, commodities, and dividend paying funds have been added. We have moved anywhere from 5% to 10% into these categories. Our ultimate goal is to move another 5%-10% from the bonds to the equities, but we believe that Congress’ March deadline could provide a pullback opportunity to have a better buying price. So we are watching the market and all the news that is affecting it. We are watching for a pullback and then plan to reposition another bond position into the equities side.

Additionally, we are also looking at the bond funds within everyone’s portfolios and asking plenty of questions to their managers regarding the effect of a rising treasury note. Even within this category we are repositioning bond funds to better position during times of potentially changing interest rates.

So, we believe by year-end the market could be higher. We believe that a move towards a larger percent in equities makes sense. We believe new categories within equities should be added, and dividend stocks and funds still rule. However, we will still remain cautious will make prudent moves based upon careful reviewing of data and we’ll continue through this process to communicate our thoughts to you. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

There is no assurance that the techniques discussed will be suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risk including possible loss of principal.