The new trading year has brought along, if nothing else, a lot more volatility to the market as can be seen in the S&P 500 VIX Short Term Futures Index that measures investors’ expectations of future market volatility (i.e. fear and uncertainty) over the past three months (see chart).
But since thebuttonwoodproject tends to take a longer-term view of the market, I am discounting much of this market sentiment and would suggest that “buy-and-hold” investors ride through volatile trading days and stay their course. With traders, vs. investors, now in control of the market, any suggestion from a central bank about interest rates or a manufacturing statistic out of a third country can rock the market. So we saw these past few weeks a partial reversal of the January swoon, despite less-than-exciting economic news as traders decided to bid up prices for no apparent reason. On the week the Dow and S&P 500 tacked on a robust 2.3% and the tech-heavy NASDAQ rose nearly 3%. I will admit that better than expected fourth quarter earnings and new Fed Chair Janet Yellen’s reassuring policy talk that dispelled worries of more serious cut backs on bond buying helped out. Closer to home, Applied Materials posted a better than expected profit and sales report and a 2014 forecast along with decent numbers coming out of Deere & Co. and CVS Caremark. ABB, however, is still battling with sluggish economic headwinds, and disappointed. And Rogers Communications, after a nice two year-run up in price, just ran out of steam last year and is unlikely to recover anytime soon and needed to be scratched. Hopefully my substitute income play – the Vanguard REIT Index Fund – will provide for better total returns and I will offer more details about my thinking for this exchange traded fund choice tomorrow. Looking ahead at the holiday-shortened week, I am anxious to see what Coca-Cola has to say about its fourth quarter on Tuesday and Newmont Mining and DIRECTV on Thursday. Finally, gold has made a nice recovery since the end of last year from just below $1,187 per ounce to Friday’s close of around $1,315, or a nearly 11 percent advance. I believe the precious metal is still oversold, and I am looking forward to a moderate comeback in 2014, taking along the gold mining stocks along with it. Have a nice holiday.