With two months down, the bull market lives on, making new highs this week. Here is how the models look as of the end of February:
Top 20 had a rough week with two earnings-related challenges that resulted to double-digit percentage mark-downs. For the week, the model dropped 1.2% compared to a 1.3% rise in the S&P 500. Consequently, the month's performance lagged, with the model rising 3.17% compared to the the 4.57% rise in the S&P 500. For the month, the model enjoyed strong performance from EZPW and EPL, but the drag from CLH, CAG and BGFV offset their contributions.
Conservative Growth/Balanced rallied just 0.07% this week, trailing the 1% return from the 60% stock and 40% bond index. For February, the model returned 1.03% compared to 2.96% for the benchmark. The bond index has returned 2.02% so far in 2014, and the model has been underweight, which has contributed to about 0.3% of the underperformance. For February, CAG was the only real drag on performance that stood out, but most of the stocks did trail the S&P 500.
The early-in-the-year weakness that we discussed at year-end proved to be a buying opportunity. The market appears to be in "bull mode", but the likelihood of a powerful continuation appears low. Oddly, the S&P 500 is beating both small-caps as well as mega-caps, with mid-caps representing the best returns so far. We continue to expect a choppy year with the potential for about 10% total return in stocks and low or slightly negative returns on bonds. The signals we watch are not flashing too much caution except for dollar weakness relative to the Euro, which is bullish for stocks until the trend reverses. The market seems to be discounting weakness in emerging markets for now. The bottom-line is that March could see a pullback that leaves the Q1 returns a bit negative after four straight positive quarterly returns in the S&P 500.