Things do not change; we change.

      - Henry David Thoreau 

Somehow we're through the first quarter of 2015 already. When it comes to the investment markets they are a continuation of what I wrote about last month. The S&P 500, representing large U.S. based corporations and which wildly outperformed almost all other asset classes in 2014 has barely moved so far in 2015. Well that's not entirely true - it's actually moved on a day by day basis more than it has in a very long time. It seems like that index goes up or down several percentage points every couple of days. But the net effect of all that volatility is a market that depending upon the day; is up about 1% for the year. More troubling than that anemic return by itself is the fact that the index hit its high for the year more than six weeks ago (as of this writing.) Just like I mentioned last month, the indexes that trailed the S&P 500 last year are outperforming it year to date - but the differential is more striking. Small Cap stocks (measured by the S&P 600) are up more than 4% year to date and mid-caps (represented by the S&P 400) are up over 12% for the year. Even international stocks are up 4-5% depending upon which index you use.

In these missives what I try to convey is not what has happened but what it means for you. In some ways our approach has been validated in a very short time frame. Diversified portfolios are exceeding the performance of S&P 500 index type investments so far this year just as they trailed those investments last year, but what about the correction that I've been expecting and not getting since the end of 2013? When we think about stock corrections - just like we think about most everything else - we tend to dwell on the last time. The 2008-2009 market "crash" brought on by the financial crisis was marked by huge downward swings on a day by day basis. In fact, three of the worst five daily percentage drops in the S&P 500 took place between September 26th and December 1st 2008 with the markets dropping approximately 9% each of those days. But a market correction doesn't have to be so sudden. A market that drops 1 or 2% a month for four or five months has still experienced a correction even if it sneaks up on you. That maybe the scenario we're seeing in the S&P 500 right now but we won't know until several more months have passed. With those same diversified portfolios you may not see much of an impact on your account balances - but instead see that performance comparison between your investments and the stock index on your statements that looked so poor last year suddenly looking a whole lot better.

This is kind of a weird moment in the markets - all of them; stocks, bonds, commodities, currencies and the like. I wanted to say there has never been more uncertainty in the markets, but that's not only hyperbolic it's also untrue. When there is uncertainty in the markets there is usually certainty in the traders of those markets and that certainty is to sell. What is present right now is not a lack of certainty but a lack of conviction. That's why we've seen these wild swings on a day to day basis. Nowhere is this more notable than in oil prices. It's good news that by and large oil is down fortyish percent year over year, but in just the first three months of 2015 we've seen the price bounce around in a 20% range as high as $56 a barrel and a low as $46. It's awful hard to make real economy plans, like should you hedge oil prices as an airline or trucking company, or should you switch from oil to natural gas at the power plant, when the economic value of those decisions shifts by as much as 10% in a single day. There are many things in play that are causing this lack of conviction. When it comes to oil prices specifically there are many international relations issues that have as much if not more impact than the narrow economic ones; the possibility of a completed agreement with Iran and when Iranian oil might be on the market again, Saudi Arabia production and pricing, U.S. production and consumption and on and on.

Lurking behind all these other factors is the Federal Reserve and when or if they are going to raise interest rates in 2015. It seems like every time an economic indicator comes out the markets react based on what the Fed is likely to do with those numbers. Forgetting the fact that the Fed uses different numbers and usually has these indicators up to months before they are released to the public (heck the release of the Fed's own data is a huge market signal and they certainly know what's in that before the public does.) The pattern seems to be that the markets react on the upside when it looks like the Fed may delay rate increases and on the downside when it looks like that raise may come as early as June. The perplexing thing is the handful of times the markets have reacted in exactly opposite of that pattern, bringing new life to William Goldman's famous quote, "Nobody knows anything." An increase in rates whenever it comes is going to have economic impact beyond that day's stock market movements. Certainly it has broad impact on what you can get in a savings account and conversely what you have to pay if you borrow money. What this means for you is that you should make any moves you feel are necessary before the Fed raises rates in the very near term. Making moves in the financial world is like catching a plane - it never hurts to be too early but even a little late is too late. We've already been in touch with several of our clients we feel should make some shifts based on the eventual rate hikes - but if you are not a client of ours and have questions about the impact of such hikes on your investments please give us a call.

While this has been an unusually short article for me this month I think I'll wrap things up. Market uncertainty or lack of conviction can lead to a lack of certainty or conviction in your personal financial plan. It shouldn't. As I've endlessly repeated, how you invest your money should be based more on how you're going to use your money than on what the markets may be doing in the short-term. If you know anyone who is worried about a market correction, a Fed rate hike, or any of the other economic issues that are beyond our control have them give us a call. We can help them with the things they can control and hopefully ease their anxiety about everything else. Yeah Spring!