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Gregory is the President and Investment Advisor of Axcel Capital Management, LLC. He directs all research, analysis, and corporate strategy for the ACM Managed Account Programs. He is a former U.S. Army officer and a graduate of Hampton University. He began his career in investments in 2006 and... More
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Axcel Capital Management, LLC
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Axcel Capital Management Market Commentary
  • June 2013 Market Commentary: Fed Comments Adding To Market Risk? 0 comments
    Jun 1, 2013 2:06 PM

    After a May that defied the "Sell in May and Go Away" mantra, we look back on another month where the equity markets again reached historic heights. Although historically a weaker month for the markets, the Dow Jones Industrial Average advanced 1.86% and the S&P 500 was up over 2% - and all of this was after a significant sell-off on the last day of the month in which the DJIA and S&P 500 dropped -1.36% & -1.43%, respectively.

    Much of the recent volatility has come in the wake of the U.S. Federal Reserve hinting at scaling back on its quantitative easing, or the purchasing of treasury bonds to provide stimulus and liquidity to the financial markets. As we indicated in our May commentary, this was the catalyst to the stock market rally we have seen since September of 2012, and would likely continue to be the fuel to push it higher. So naturally, the recent comments from Fed officials suggesting a near-term exit have had a negative effect.

    The key to when the Fed might taper its asset purchases is the improvement of economic data. While consumer confidence rose to its highest levels in 5 years last week, the Fed is specifically looking for continued improvement in employment numbers (as indicated in the Fed minutes released last week). Last month's U.S. Labor Department indicated the addition of 165,000 jobs in April; well north of expectations. It will be interesting to see how the markets react to next week's May report. A positive report is of course good for the economy and usually the markets react well, but a positive report could also mean we are closer to a Fed exit.

    Another key development has been the rising interest rates; with the 10-year treasury back north of 2%, since hitting 2013 lows of 1.63% at the beginning of May. This can be attributed to the prospect of sustained economic growth, marginally improving economic data, as well as the Fed exit. In any case, this has resulted in a pullback for bondholders - the U.S. Barclays Aggregate Index (as measured by the iShares Core Total US Bond Market ETF) declined over 2% for the month.

    While the risk of a pullback in the stock market remains ever present as the S&P 500 has now advanced for the 7th straight month, declines in bond prices and commodities (gold prices are down 17% year-to-date) have furthered the case to continue to remain in equities. The S&P 500 continues to show strong positive relative strength and remains above all of its major moving averages (50,100, and 200 day). As we head further into the traditionally weak summer months, we will continue to monitor and tactically adjust when necessary. However, we remain cautiously optimistic at the moment.

    Disclosure: I am long IVV, IWM.

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