Comments On Market Pullback
Posted by Team HFM on January 31, 2014
2013 was a stellar year for the stock market and a poor year for the bond market. But we think that the best way to characterize 2013 is as a year that took the rough edges off of the markets. When we started the year, stocks were cheap relative to where they have been over their history, and bonds, measured by the income that they produce, were very expensive. Now we would characterize the stock market as fairly valued and the bond market as expensive but less so.
Consequently, we continue to believe that we should favor the equity portions of portfolios by having an exposure to stocks that is slightly higher than the portfolios’ targets. Yet the stock market’s rise in the later weeks of 2012 and all the way through 2013 was characterized by unusually low volatility and a rather steady climb. Because of the prolonged nature of this calm period, we are not surprised to see the market “take a breather”. Given the strength of corporate balance sheets and the improvement in economic indicators throughout the developed world, our bias is that this “breather” will not become a more sustained downturn.
A pullback of this nature may very well provide us with an opportunity to rebalance should any securities in which we have an interest become more attractively priced. Should our opinion change, we will certainly keep you updated and likewise, if you have any questions or concerns, please let us know.