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November 2013 Commentary

Our June commentary happened to be timely and fortuitous when I suggested the 5% pullback in the US markets sparked by the Federal Reserve hinting of a bond buying taper was “unwarranted” and an “overreaction” and would be “short-lived” and create a “buying opportunity”. Since then the S&P 500 has risen almost 13% to an all-time high of around 1800.

Assisting the rally was the Federal Reserve delaying the tapering and the appointment of Janet Yellen as Ben Bernanke’s replacement as the chair of the Federal Reserve. Yellen’s appointment is seen as a positive since it is anticipated she will continue the accommodative fiscal stance that her predecessor has maintained. In addition, I believe when the Fed commented on tapering, the masses assumed interest rate hikes were soon to follow. The Fed has since clarified that they anticipate being in a low interest rate environment for an extended period of time. Their stance on interest rates may be enough to prevent another sell-off if they actually do begin to taper prior to year end.

The extended rally we have seen in the stock markets has led me to become more cautious from a valuation standpoint on US equities. I still believe equity markets will perform well over the long-term, however it is hard to overlook the ferocity of the multi-year rally and wonder if we are due for a healthy breather. We may not see the pull-back until early 2014 though. With the S&P 500 up over 20% this year and the average equity mutual fund returning around 11% and average hedge fund returning around 8%, fund managers may feel pressure to raise annual performance in the final couple months by increasing equity exposure. The result could be a year-end rally and an early 2014 pull-back.

From a model allocation standpoint, due to our feeling that the US markets are properly valued, we are looking at opportunities in the developed international sector in belief that the financial crisis in Europe has eased. We will, however, take advantage of buying opportunities in the US if there is a pullback domestically. For our fixed income portion, we are looking to stay on the lower duration side of the yield curve and increase allocations to lower credit quality fixed income investments in anticipation of a rising interest rate environment. We have been seeking opportunities in floating rate debt as well as international debt.

As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties. 

Jason M. Vavra, CPA, PFS 


The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results.