Looking through the past three months there have been plenty of noteworthy news stories. Whether it be the situation in Ukraine, or the implementation of Obamacare, there have been numerous events to potentially move markets.
Interestingly enough despite all this news financial markets are little changed for the first three months. This column is being written on the morning of the 31, so I am assuming there will be no unusual changes in the last few hours of trading for the day.
This means that investors should see only small changes when they look at their financial statements through the end of the first quarter. Someone who has a 401K plan might see increases in value, but this could be due more to contributions made by oneself and employer versus investment gains.
Another interesting occurrence for the quarter was that various investment strategies performed in a similar manner. That is there was little difference in bond versus stock returns. In addition, there were only minor differences between domestic versus international investments. Finally returns were quite similar between large company stocks versus smaller and medium sized companies.
While different investment strategies had similar returns for the quarter, there was still significant movement during this time. For example emerging markets started the quarter very poorly down nearly 10 percent, but finished strongly coming back to near breakeven. Likewise the over the counter market, led by bio-tech and internet companies, was strong for much of the quarter, but lost most of those gains last week.
With the stock market staying near record highs, there has been frequent talk of a more meaningful correction in prices. However, the market was able to overcome a period of somewhat subdued economic readings along with the crisis in Ukraine.
Corrections in the market do occur periodically. However, just because the market is at a high does not mean one is likely to occur any time soon. As long as interest rates do not change significantly, and corporate profits remain strong the stock market should continue to do reasonably well.
What might be a more likely occurrence is that certain segments of the market have significant moves, while changes of the overall market are more subdued. Smaller company and over the counter stocks were big winners last year, so those companies need to show stellar results to justify their relatively high valuations.
Likewise emerging market stocks were poor performers last year, so expectations for them are not as high. Nonetheless, investing in emerging markets is a risky strategy, and someone should not devote a large amount of their assets to that investment style.
I believe it is appropriate for investors to review their holdings at least once a quarter. For those who did not make any changes during the first quarter, their relative weightings in different asset classes should have remained virtually the same.
Some might think that this implies that no changes need to be made. However, if someone has a disproportionate amount of holdings in aggressive stocks, and due to inertia or greed did not make changes previously, now might be a time to do so.
While many investors may not be happy that they made little or no money in the first quarter, we must realize that returns we saw last year are not sustainable. Someone must remember that investing in the stock market requires a long-term perspective. Assuming the economy improves for the balance of the year, the potential still exists for positive returns for the year.