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April Commentary: A Review of the First Quarter

As we headed into 2015, many wondered if the stock market could achieve a seventh consecutive year of growth. With interest rates still at or near all-time lows, housing and job markets still in flux, and Europe in a state of disarray, there certainly was a lot of unknown as we set sail on the new year. Well, with one quarter in the books, the only thing that has become clear is going to be quite a ride.


Many, including yours truly, anticipated volatility on our way through the year, and that is exactly what we got. No matter how you look at the market results from the first quarter, there were ups and there were downs. As has become a trend, there were a number of occasions when the markets hit all-time highs, but those were quickly erased by triple digit losses. At the end of the day, the Dow Jones Industrial Average was down less than one half of one percent, while all four major sector indices we track were up to differing degrees.


In 2014, the big winner at the party was large cap stocks, while bonds and small cap stocks were up a little bit, and international stocks, both emerging and developed, were down significantly. Ironically, but not surprisingly, it has been international stocks that have won the day so far in 2015, while small caps and bonds continue to mosey along, but large cap stocks are feeling the lag of having had a nice year last year. The rebound of international markets this year did not come as a surprise, and should not be construed as a sign of changing winds. More than likely, it is a result of the lack of performance in 2014, and the fact that investments in markets that have underperformed are coming cheap(er), which creates demand, and pushes prices upward. Remember, savvy investors don't run scared from markets that have performed poorly; they dive in, and buy investments at a discount.


Despite early positive returns, we feel confident in our decision to limit international exposure in our firm's portfolios. There are still many risk factors at play in Europe, including the possible crumbling of the Euro, which could send the region and others around the world into a downward trend. We continue to believe, strongly, that participation in developed and emerging market investments is an important piece of the puzzle; however, we are remaining cautious as we try to capture positive results, despite their supply being somewhat leaner than in the recent past.


An interesting development during the first quarter of the year is a rising concern over our gross domestic product (GDP), which measures the strength of the economy based on goods produced, imported, exported and consumed. During the period of 2010–2014, a period in which the stock market grew by an average of over 13% per year, the GDP struggled along at an average of about 2.3%. While first quarter numbers have not yet been released, it is anticipated they will hover around or below the fourth quarter of 2014 figure, 2.2%.


In previous times, the slow GDP growth was somewhat masked by falling unemployment numbers and solid jobs reports. However, the March 2015 jobs report was less than stellar, thus shedding some light on the fact that there might be some underlying economic issues going on here. Only time will tell if there is really a developing softness in the U.S. economy, or if this was the result, as many will theorize, of a terrible winter during which people were just not shopping and spurring the economy.


No matter what, though, spring is upon us. So let's hope that first quarter showers bring all of us some second quarter flowers!


Happy Spring!




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 Securities offered through American Portfolios Financial Services, Inc. Member FINRA/SIPC (FINRA/SIPC). American Portfolios Financial Services, Inc. and American Portfolios Advisors, Inc. are not affiliated with any other named business entities mentioned.

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