Cupid Rallies to the Cause

Posted on March 13, 2015 | Model Portfolios

Despite a loveless January, romance and stocks bloomed in February. The S&P 500 index’s total return was 5.8% for the month. The market love was fairly egalitarian in February, as most of the performance of indexes and portfolios was around the 6.0% level.

The Model Fund Portfolio gained 5.2% in February, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, gained 5.6% last month.

The Model Shadow Stock Portfolio’s 5.6% increase for the month slightly trailed both of its comparison benchmarks: The Vanguard Small Cap Index (NAESX) gained 5.8% and the DFA US Micro Cap Index fund (DFSCX) gained 6.0% in February. Year to date, the Shadow Stock Portfolio has returned 1.0% while the NAESX has returned 3.5% and the DFSCX has returned 0.8%. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual return of 16.8%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.5% annually over the same period.

The Model Fund Portfolio’s 5.2% increase in February compared to a 5.8% increase for the Vanguard Total Stock Market Index fund. Since its inception in June of 2003, the Model Fund Portfolio has a compound annual return of 9.4%, slightly underperforming the Vanguard Total Stock Market Index fund over the same time period, which returned 9.6%.

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Don’t Judge a Bull Market by Its Age

Posted on March 12, 2015 | Investor Update

Investor-Update
The bull market celebrated its sixth birthday on Monday. The milestone put the rally in an unusual club. Since World War II, only three other bull markets made it to year six, according to Sam Stovall at S&P Capital IQ. Just two made it to year seven: June 1949 through August 1956 and October 1990 through March 2000. Seven other bull markets ended before year six.

I would refrain from jumping to any conclusions based on these numbers. Stovall says previous post-WWII bull markets have lasted between 1.1 years (May 1947 through June 1948) and 9.5 years (October 1990 through March 2000). Plus, the sample size is small, at just 11 sustained rallies.

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More Than 60% of Polled Investors Believe Bull Market Will Last

Posted on March 12, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members whether it is likely or unlikely that the current bull market will last into at least a seventh year. Half of all respondents said the bull market is likely to continue into a seventh year. An additional 11% of respondents think the odds of the bull market reaching a seventh year are somewhat likely. Reasons given for the upbeat outlook varied (earnings growth, price momentum, valuations, sentiment, etc.), though several respondents cited economic growth, accommodating monetary policy and the attractiveness of U.S. stocks relative to other investment options as influencing their outlook.

At the other end of the spectrum, 15% of respondents said it is unlikely and an additional 17% said it is somewhat unlikely for the bull market to last another year. Tightening monetary policy was the primary explanation given, followed by valuations. Other reasons included the possibility of stronger international markets attracting investment dollars, the stronger dollar and the length of the current bull market.

Here is a sampling of the responses:

  • “It is likely to happen as other alternatives (bonds, CDs, cash, etc.) offer far worse returns.”
  • “Somewhat likely provided that interest rates stay low and employment improves.”
  • “Somewhat unlikely since the Fed will probably begin raising rates in the next few months.”
  • “Unlikely. P/E ratios are getting frothy.”
  • “Very likely. The economy will continue to grow.”


AAII Sentiment Survey: Neutral Sentiment Surges; Optimism Plunges

Posted on March 12, 2015 | AAII Survey

Neutral sentiment surged to a level not seen since last May in the latest AAII Sentiment Survey. The rise in neutral sentiment occurred as bullish sentiment fell to its lowest level since last summer.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 8.2% percentage points to 31.6%. This is the lowest level of optimism since August 7, 2014 (30.9%). The drop puts bullish sentiment below its historical average of 39.0% for the first time in five weeks and just the fifth time in 31 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 6.2 percentage points to 43.0%. Neutral sentiment was last higher on May 22, 2014 (43.2%). The rise puts neutral sentiment above its historical average of 30.5% for the 10th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.1 percentage points to 25.4%. Though at a five-week high, pessimism remains below its historical average of 30.5% for the fifth consecutive week and the 43rd out of the past 52 weeks.

Bullish sentiment has declined by a cumulative 15.4 percentage points since reaching a near-term high of 47.0% on February 19, 2015. Over the same period, neutral sentiment has risen by a cumulative 7.9 percentage points and bearish sentiment has risen by a cumulative 7.5 percentage points. The rebound in pessimism is occurring after bearish sentiment had fallen to an unusually low level of 17.9% on February 19, 2015.

Neutral sentiment is now at an unusually high level, meaning it is more than one standard deviation above its historical average. Unusually high levels of neutral sentiment have historically been associated with better-than-average market performance over the preceding 26- and 52-week periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.)

The change in sentiment is occurring as the S&P 500 has pulled back from its recent highs. Though jitters about the Federal Reserve raising interest rates sooner than later have impacted stock prices, when asked two months ago, AAII members expressed mixed opinions about how the market would react to the first rate hike. More than 40% said they expect stock prices to fall in reaction to the announcement of the first rate hike, though about half of these respondents also predicted that the decline will be temporary.

Also playing weighing on AAII members’ short-term market outlooks are prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the pace of economic growth and worries that an even larger decline in stock prices could occur. Keeping some AAII members encouraged is the overall upward momentum of stock prices, sustained economic expansion, earnings growth and an accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 31.6%, down 8.2 percentage points
  • Neutral: 43.0%, up 6.2 percentage points
  • Bearish: 25.4%, up 2.1 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



AAII WEEKLY FEATURES 3/10/2015

Posted on March 10, 2015 | Weekly Features

Investor-Update

This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.

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Changes to the Dow Jones Industrial Average and the DI Portfolio

Posted on March 6, 2015 | Dividend Investing

This week we are removing one of our original positions in the DI portfolio, United Technologies (UTX), and replacing it with Qualcomm Inc. (QCOM). Qualcomm develops digital communication technology and operates in the semiconductor industry.

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The Only Constant is Change

Posted on March 6, 2015 | Stock Superstars Report

As we enter March, we celebrate this aged bull market, which is now six years old. The bull market has left its mark on the SSR portfolio; the portfolio is wealthier for it, but higher valuations have changed the types of companies that pass its screens.

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Lessons from Buffett’s 50 Years at Berkshire-Hathaway

Posted on March 5, 2015 | Investor Update

Investor-Update
I want to personally invite you to our 2015 Investor Conference, which will be held this November in Las Vegas. This conference regularly sells out. If you can attend, you will be treated to many great presentations. Among the speakers at this year’s conference are Jack Ablin of BMO, Larry Swedroe of the Bam Alliance and Christine Benz of Morningstar. I hope to see you there!

Warren Buffett’s annual letter to Berkshire-Hathaway (BRK.B) shareholders is on my must-read list, and I suggest adding it to yours as well. The letter always provides investing insights on Buffett’s folksy but outspoken manner. This year’s letter included special commentary from both Buffett and his partner Charlie Munger.

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Fourth-Quarter Earnings Make Little Impact on Investor Outlook

Posted on March 5, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members how fourth-quarter earnings have influenced their six-month outlook for stocks. Responses were mixed, with 37% of respondents saying the profit reports have not influenced their outlooks. Many of these individual investors said other factors were more influential, such as geopolitics, valuations and monetary policy. Nearly a quarter (24%) of respondents said fourth-quarter earnings negatively impacted their outlook, with the impact of the stronger dollar being the primary reason. Just under 15% were encouraged by last quarter’s earnings, with many saying the results confirmed that growth was still occurring.

Here is a sampling of the responses:

  • “No influence. I’m much more concerned about global issues.”
  • “Earnings are being pressured by the rising dollar.”
  • “Not much. Some earnings have been dampened by currency fluctuations. I view this as temporary noise.”
  • “Reinforced the notion that large-cap companies are in good shape.”


Sell OF THE WEEK 3/4/2015

Posted on March 4, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Mattel (MAT) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





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