A Big Rebound but Proceed with Caution; PLUS Our Fun Stocks Index Is Changing
A big 5.5% rebound sparked by better-than-expected corporate earnings in the S&P 500 Index in February wiped out its 3.1% loss in January. As such, the S&P 500 is up 2.2% year-to-date. Investors, who maintained their asset allocations in stocks benefited from this rebound. However, bond investors and those who were over-allocated in long-term bonds suffered some significant losses. In fact, long-term bonds as represented by the iShares 20+ Year Treasury Bond ETF (TLT) lost 6.3% in February. In addition, asset classes such as utilities and real estate investment trusts (REITs), which are often substituted for bonds, also saw losses of 5-10% during February. These losses were, for the most part, due to growing expectations that the U.S. Federal Reserve will raise interest rates this year.
March will be a pivotal month for stocks as upcoming jobs and consumer spending reports will be key indicators of how the U.S. economy will perform going forward. Remember, the stock market leads and predicts the economy and not the reverse. Therefore, it is important for investors to understand that the stock market’s ability to foretell broad economic activity 3-6 months ahead is what they should key in on. Waiting for economic data that confirms the past is not a good way to invest.
Changes to Our Fun Stocks Index
In May 2013, when we launched our blog, we created the Fun Stocks Index as a motivational and teaching tool to encourage investors to take charge of their investment activities and goals. Based on our client portfolios, we used stocks of companies that have “fun” products and/or services very familiar to most consumers (e.g., Disney, Netflix, Expedia, etc.). We hoped to show investors that profits can result from using a simple theme like “investing in stocks that create fun for them.” We believe we have successfully demonstrated that.
While our Fun Stocks Index has performed quite well (up 37% since May 2013 and up 683% since January 2009 versus the S&P 500 Index’s gains of 25% and 133% during the same timeframes), we have decided to change this index and convert it from a static (unchanging) portfolio of 15 stocks to a dynamic portfolio consisting of current and ever-changing stock recommendations of “Fun Stocks” that meet our “fun generators” criteria. For example, as appropriate we will periodically remove some of the poorer performing stock recommendations from the original Fun Stocks Index (e.g., American Express/AXP) and add some other better performing ones (e.g., Sirius XM/SIRI). We believe this structural change will be more exciting and allow us to share with you dynamic new opportunities to profit from “fun-creating” businesses. This conversion will take a few months, so stay tuned. You’ll want to sign up for a free subscription to ensure notification when the conversion is complete.
Meanwhile, we suggest that you continue to accumulate shares in the cruise lines [Royal Caribbean (RCL), Carnival Cruise Lines (CCL), and Norwegian Cruise Lines (NLCH)]. These stocks will make excellent long-term profits by creating many fun times for consumers.
Maintain TSOA Retirement Model Allocations
Despite a cautionary outlook for stock and bond markets in the near term, we do not advocate any allocation changes in our TSOA retirement model portfolios at this time.