A confluence of events preempted me from writing yesterday. Amongst those events was the dying of my beloved HP12C which sent me scrambling to purchase another one for the quarter end. However, I would have saved you time and me effort because my expectations were for a quiet session to end the month and quarter. That was indeed what happened. It also came as no surprise to see some last minute profit taking hit the tape which resulted in a flattish close.
Dividend Stocks Outperform in Second Quarter 2014
Today we begin the third quarter of 2014. Before that, let’s review the second quarter a little bit. All major asset classes – stocks, bonds, gold and oil – rose during the second quarter. Within the world of equities, greater gains were earned in the dividend oriented stocks such as utilities which can be evidenced from the 6.01% rise in the Philly Utility Sector Index (UTX) and 6.78% jump in the S&P 500 Low Volatility High Dividend Index (SP5LVHD). Also a stellar performer was the NASDAQ 100 (NDX) which rose 7.06%, after a flat first quarter, thanks to the 21.19% surge in Apple (AAPL). The more risky small-cap and growth stocks, as I wrote all quarter long, were relative underperformers, gaining on average between one and two percent. Thanks to higher interest rates around the globe, US Government bonds continued to get bid higher in price. Al Qaeda activity in Iraq and Syria put global tensions on high alert leading to a rise in both oil and gold.
Expect a Dull Third Quarter
While normally in a mid-term election year, the S&P 500 (SPX) historically declines in the second quarter, clearly the 4.69% rise in that index was a statistical surprise. During mid-term election years, that large cap index historically traded flat during the third quarter. My expectations are that the third quarter will be rather flattish to lower. That will occur after the SPX makes a run to SPX2K or the 2,000 index level, which is only 2.03% away from its June 30 closing level. I have begun to raise some cash as the second quarter drew to a close and have some limit orders above the market to scale out of parts of existing positions. After breaching SPX2K, I see the markets pulling back for the summer, which can normally be a slow time for stocks but is also a period of time when equities are most vulnerable to exogenous behavior – political, economic and military/terrorist – and tends to see an escalation in volatility, which has remained low so far this year. I want to get prepared for what I expect to be a very bullish fourth quarter.
World Cup Fever Will Lead to Early Exit Today
As for today, expect an early rise in the stock market as beginning of month/quarter asset flows get put to work. Then, as we approach the closing bell, most likely around 3:30, traders and investors will leave their turrets and screens early to watch the USA – Belgium World Cup Soccer match at 4PM. I am rooting for Disney’s (DIS) ESPN and Buffalo Wild Wings (BWLD) to prosper on World Cup fever in the USA. Just by getting to this game, the USA and those companies are winners. A USA win today will likely be the biggest international sporting win for the Americans since the USA beat Russia in ice hockey at the 1980 Winter Olympics in Lake Placid.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, BWLD & DIS — although positions can change at any time.
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