Newsletter First Quarter 2014

After a strong finish in the equity markets for 2013, the New Year brought some concerns about an unusually severe winter climate, and the sustainability of an economic recovery.

Many analysts expected a tough first quarter for company earnings reports. The markets were also focused on the Fed, looking for signals concerning possible tightening. Investors who had accumulated significant gains over the previous few months wondered if they should take some money off the table. The conflict in the Ukraine was also a concern. As the end of the quarter approached, and some companies were already reporting lower earnings, we saw the equity markets pull back.

As we mentioned last quarter, we have held above average cash reserves in our portfolios, anticipating that we were overdue for a correction, and discovering it more difficult to find stocks which appeared to be priced at good entry points. When the markets are in a strong rally, our risk aversion causes us to somewhat underperform the markets. However, our cash reserves allow us to take advantage of buying opportunities during pullbacks.

We cannot know for certain, as the market is pulling back, whether a sell off will be a healthy pause in a constructive bull market or a reversal which could become more steep and prolonged. However, we do know that we are prepared to react to what comes next; and our strategy gives us a discipline to follow whichever turns out to be true.

As we write this, the markets are buoyed by some better than expected earnings, and signs that the economic recovery is still slowly progressing. A rally seems to be afoot; and some stocks which have interested us are now priced more attractively. We continue to look forward to a moderately positive equity market over the course of the year, and to adjust our fixed income portfolios as needed to anticipate rising rates. But we will remain vigilant and prepared for a change in course, should it occur.

We hope you have survived tax season and are enjoying the warmer weather. Have a wonderful spring.

Warmly,

The Galarneau Group Wealth Management Team