Thus far in 2013, the S&P 500 and the Dow are up approximately 9.5% and 10.7%, respectively. Health care and financial companies have led the pack in the first few months of the year. Improvement in economic data as well as companies continuing to report solid earnings has provided support behind the market returns thus far. Of the 489 S&P 500 companies that have reported earnings, 71% have reported better than expected numbers for 4th quarter 2012. Looking forward, 16% of these companies have issued negative guidance for first quarter 2013, thereby tempering expectations.
Former fed chairman Alan Greenspan expressed his opinion that he believes the market could have further upside. In a morning interview today he stated that stocks, by historical standards, are “significantly undervalued” even considering the recent moves higher. While the uncertainty of the impact of higher taxes, spending cuts and the potential slowing of quantitative easing continue to weigh on investor’s minds, the U.S. market continues to shrug these “what-if’s” off and continue upward.
International and emerging markets have lagged as they look for catalysts to revamp their economies. Weak economic conditions in Europe continue to lead to declines in growth relative to last year. If these markets begin to show some signs of improvement in the second half of the year, it could provide a springboard effect for the global economy and potentially lead to the next rally.
In the financial sector, banks faced stress tests to determine if reserves are sufficient and are capitalized well enough to survive through a severe market downturn. After review of their capital plan, the Federal Reserve approved Bank of America’s plan to implement a $5 billion common stock repurchase and redeem $5.5 billion in preferred shares.
Samsung unveiled their new Galaxy S4 phone this week which was met with a similar response to the Apple iPhone 5 release. Amid all of the hype, the ultimate realization is that these products can only do so much more than we have become accustomed to – until someone creates the next “it” product. However, we still see major untapped markets in international arenas as growth engines for both of these companies.
As we continue to see signs of domestic economic improvement in pockets such as housing, we anticipate facing headwinds from various factors including fiscal policies. Based on these factors we continue to believe that staying committed to our asset allocations will be beneficial in this environment and over the long term. We will continue to monitor our portfolios to consider if individual positions have reached their targets and also consider what potential new opportunities are available.