May 23, 2013
This is Jim Lowell, Editor-in-Chief of the Fidelity Investor, with your regularly scheduled Hotline, Thursday, May 23rd, 2013.
There are no trades recommended in any of your model portfolios.
Through May 22nd the S&P 500 is up 16.9%, the Wilshire 5000, the broadest measure of our domestic market, is up 17.2%, and the EAFE index, the broad measure of international markets, is up 12.3%.
Over the same time period, our rankings-based, quantitative Global Quant portfolio is up 14.9%. Our Aggressive Growth portfolio is up 12.6%, our Growth portfolio is up 12.2%, our Growth & Income portfolio is up 11.7%, and our Income portfolio is up 9.4%. VIP Growth is up 11.6% and VIP Growth & Income is up 10.8%.
Just when I was beginning to hear from a few members that our income-oriented stakes were too much of a drag on performance, which has been true so far this year, the Japanese market dived over 7% overnight, and European bourses were bleeding losses in the 2% to 3% range.
The trigger: China’s manufacturing gauge unexpectedly moved from expansion to contraction. That, in conjunction with our Fed Chairman’s comments on the need for stimulus and the difficulty of weaning away from it (Bernanke’s comments didn’t really say anything new nor lend any new evidence for lengthening stimulus or curtailing it) put the skids to this year’s hottest market (Japan) and continued to take a toll on the once darling China stock market.
Surprising to some, our markets are not off to a rough start this morning. Yes, they’re down about 1%, but in a global marketplace where one leg came off the stool overnight, not wobbling means we’re standing tall.
What gives? Here at home, we have a convergence of solid housing recovery data (in terms of sales and prices) and a better than expected jobless claims number, and most importantly, a foundational backdrop of fundamental evidence for slow growth not no growth. The result is investors are less skittish, and rightly so.
This doesn’t mean that there won’t be reasons to become skittish; after the spectacular rise in our own markets (up about 18% for the year), some profit taking should be expected and could be accelerated by evidence for either a sudden drop in the pace of our recovery or a sudden Fed intervention based on a faster-than-assumed pace of our recovery.
I’ve said this a few times this year: a 10% to 15% drop would not surprise me if either of the above trajectories plays into the current one. Moreover, I think the selling we saw inside Japan’s marketplace overnight can be most correctly viewed as profit taking after 40%-plus profit making on news of slower-than-anticipated growth. That’s rational, even if it may turn out to be a bit overdone. (It will be interesting to see how Japan’s markets behave tonight.)
Tomorrow, we get the U.S. durable goods report. But it is also the start of a holiday weekend, and the markets are prone to react to any news in such a light fare vacuum. I would expect that Japan’s downdraft ruffles more than a few feathers over the next days and weeks. But, if the fundamentals here in the U.S. hold, I still think we’ll end up higher by year-end than where we find ourselves today.
Today, to circle back to my starting point, we can be thankful for our disciplined, risk-adjusted approach to the markets. Our bond positions have hindered our gains on the upside year-long, but when the going gets tough, they serve the known role that let’s us deliver on our investment view that losing less remains the key to our long-term investment success.
Until next Thursday, or if the Dow moves 5% in either direction, this is Jim Lowell, helping you secure your financial future.