All major exchanges enjoyed a positive week, as the rhetoric surrounding trade cooled and sides spoke of openings rather than retaliation. Commodity prices were quiet last week, with the notable exceptions of copper and aluminum. Copper prices fell, as many hedge funds cashed out, and aluminum rose on U.S.-imposed sanctions against Russia. In the domestic equity market, energy was the top performer last week. Thanks to crude oil holding above $67 per barrel, those stocks added 6%. The strongest subset within the energy group were the exploration and production companies, combined with the oilfield service providers, on the prospect of greater activity in North America. Information technology was the second strongest group last week (+3.5%), driven by the semiconductor and capital equipment companies. The declining sectors for the week were the interest-rate-sensitive utilities and REITs, as U.S. interest rates posted slight gains. The size bias changed in character this week, as both the S&P 500® Index and the Russell 2000® Index gained ground with a slight 2% to 2.4%, bias to the Russell 2000® Index. Globally, the converse was true with the MSCI EAFE® Index adding 1.5%, compared to the MSCI Emerging Market Index’s 0.7% gain.
Investors will most likely be subject to significant cross currents this week with the first quarter earnings report ramping up, the reaction to military action in Syria, and the passing of the U.S. federal income tax filing deadline. That last item marks the end of the seasonal inflow of capital to the markets from IRAs, pensions and profit sharing plan contributions. Typically, once this capital flow has passed, prices have historically exhibited a period of lackluster performance. This seasonality produced the axiom “sell in May and go away,” meaning that not much in the way of meaningful price action is likely to occur over the summer months. The selling we have experienced this year, combined with seasonal capital flows, implies that there is considerable cash on the sidelines intended for long-term placement. Warren Buffet famously said that it is wise to be “fearful when others are greedy and greedy when others are fearful.” In a stark change from the preceding eight years, I am seeing lots of “fearful” in the market. History is also replete with examples that fortune favors the bold, so I encourage you to be resolute and stay with your financial plan; now is not the time to blink.
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