The calendar flipped and the personality of the markets also turned. We started the year with minor losses, but the markets have flipped those losses to small gains. In reality, we have been in a trading range for the last four months and it’s been nothing more than chop.
The recent choppiness in equities, while disappointing, is not altering our positive stance for equities in 2014. In our view, equities are supported by the positive combination of:
1. Strong corporate fundamentals
2. Strengthening US consumers
3. Pent-up demand for durables investment and improving global growth
4. Attractive relative value
Additionally, in the short-term, the low beta of mutual fund managers and high short-interest ratios should fuel for an eventual rally for the year.
Trading ranges, like the one we are in now, tend to be frustrating, but they are necessary.
The market made a big run last year and investors are now taking time to evaluate earnings, the economy and geopolitical events. In other words, our recent market movements are normal.