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GregCorneille
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Gregory is the President and Senior 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... More
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Axcel Capital Management, LLC
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Axcel Capital Management Market Commentary
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  • August 2014 Market Commentary: Stocks Down For 1st Time Since January, What Next?

    The largest single-day stock market drop in the past six months on the last day of the month of July has lead to the first monthly losses for the major U.S. stock market indices since January. For the month of July, the S&P 500 was down 1.5% and the Dow Jones Industrial Average (DJIA) was down 1.6%. For the year, S&P is currently up 4.5% and the Dow up 0.74% as of the end of July. Interest rates crept up slightly, with the 10-year Treasury note rate finishing the month at 2.56%.

    The Federal Reserve continued reduction of its quantitative easing program (the purchasing of treasury bonds to help provide liquidity to the economy), trimming purchases from 35 billion to 25 billion. The Fed also continued its dovish (market-accommodating) stance in indicating that it does not expect to raise interest rates until next summer, despite the strong GDP numbers this past month.

    What can we make of this monthly decline? For starters, does not come amidst an environment of poor economic data. Corporate earnings for the second quarter, for example, have been overwhelmingly positive - with over 70% of companies in the S&P 500 reporting earnings per share above their mean estimates. The Fed has made note of continually improving labor conditions, with jobless claims reports hitting 4 month lows earlier in July and the employment cost index rising due to larger-than-expected increases in wages. While the latter employment data has led to fears of inflation which may lead to the Fed raising interest rates sooner than expected, it was undoubtedly good news. Finally, consumer sentiment continues to rise, again reaching levels not seen since 2008.

    However, the sentiment that seems to be growing louder is that stocks are overvalued. Essentially, the latter part of the economic recovery since 2008 has consisted of stock prices rising faster than earnings, leading to uncomfortably high P/E (price/earnings) ratios. While this is not a new development, the question has always been when, not if, a market pullback would allow those ratios to return to their historical averages. In fact, the stock market has already gone 34 months since the last market correction (of 10% or more), versus a historical average of 18 months.

    From a technical perspective, the S&P 500 finished the month below its 50 day moving average - the third time this year the index has done so - but still remains above its 100 and 200 day averages. Although interest rates increased slightly last month, the 10-year Treasury note remains below its 50, 100, and 200 day moving averages, and the bearish (downward) crossover of the 100 and 200 day moving averages we observed in May is still present. As stated last month, this would support a bullish position in long-term treasuries. Because of weakness observed in our smallcap stock position and declining relative strength in equities overall, we have eliminated our small cap stock position and re-positioned back into long term treasuries and will hold that in addition to our existing position in emerging market stocks.

    Disclosure: The author is long EEM, TLT.

    Aug 13 7:59 PM | Link | 1 Comment
  • July 2014 Market Commentary: Will Stocks Keep Going After Dow 17,000?

    Stock markets finished the month of June recording a fifth consecutive month of gains and closed out the largest 2nd quarter gain since 2009. For the month of June, the S&P 500 was up 1.9% and the Dow Jones Industrial Average (DJIA) was up 1.5%, the latter index reaching over 17,000 for the first time. For the year, S&P is currently up 6% and the Dow up 0.85% as of the end of June. For the year utility, real estate, and energy stocks have led the way in gains; while financials, cyclical, and industrial stocks have lagged. Interest rates rose somewhat significantly before declining, with the 10-year Treasury note rate finishing the month at 2.52%.

    The Federal Reserve reduced its quantitative easing program (the purchasing of treasury bonds to help provide liquidity to the economy) for a fifth consecutive meeting to $35 billion. However, it indicated that it would continue to provide support as the labor market remains significantly underutilized - despite the June unemployment rate figure being a six-year low.

    It may seem as though while the stock market continues to reach new heights, we are coming ever closer to the "top" - from which a much-anticipated pullback is long overdue. While this is inherently true, it is important to focus on concrete evidence as decision-making factors - some of which is usually not revealed until the pullback has already begun to occur. The only real significance of the DJIA reaching 17,000 is that it is right about where some analysts estimated it would be at the end of the year; suggesting a sideways market through the remainder of the year. Fundamentally, however, stocks continue to benefit from a low interest rate environment, low global inflation, a shrinking federal deficit, and as mentioned before, and central banks around the world that continue to be accommodative to growth. In other words, although stocks appear long overdue for a correction, they continue to appear as the best of the bad apples. Because of this, however, the importance of having a flexible investment approach cannot be understated.

    From a technical perspective, the S&P 500 continues to remain above its 50, 100, and 200 day moving averages. Although interest rates increased slightly last month, the 10-year Treasury note remains below its 50, 100, and 200 day moving averages, and the bearish (downward) crossover of the 100 and 200 day moving averages we observed in May is still present. Again, this would support a bullish position in long-term treasuries in the absence of other options. However, with the trend in emerging market stocks still intact at the moment, and the recent relative strength improvement in small cap stocks, we have repositioned out of long term treasuries and into small caps to go along with our existing position in emerging markets.

    Disclosure: The author is long IWM, EEM.

    Jul 11 2:21 PM | Link | Comment!
  • June 2014 Market Commentary: Still More Room For Stocks To Rise?

    The month of May wrapped up with U.S. equities posting their largest monthly gains since February and the Dow Jones Industrial Average (DJIA) and S&P 500 again reaching new records. For the month of May, the S&P 500 was up 2.1% and the Dow Jones Industrial Average (DJIA) up 0.82%. For the year, S&P is currently up 4.07% and the Dow up 0.85% as of the end of May. Interest rates continued to decline, with the 10-year Treasury note rate finishing the month at 2.46%.

    While we are not fully invested in stocks at this moment, we do believe that there is potentially more room for stocks to rise. Investors had much to be upbeat about in the way of economic data during the month of May. The unemployment rate fell to a five-year low of 6.3%, employer payrolls rose by the most in over two years, and housing data continues to show signs of improvement. And although the S&P 500 is trading at a relatively high P/E ratio of around 17, consumer sentiment continues to suggest that Americans are not over-confident about the economy. Volatility is extremely low, and if the economy continues to maintain status quo we could very well see a historically common seasonal bounce coming into the fall months.

    All of the above being said, why are we not fully invested in the stock market at this time? Because we have seen a potentially better opportunity in long-term bonds due to declining interest rates. Fundamentally speaking, the Federal Reserve maintained its commitment to continue with its reductions of quantitative easing (monetary stimulus to the economy). However, the meeting minutes released last month showed that a pledge to keep interest rates low as long as the unemployment rate exceeded 6.5% and the inflation outlook did not exceed 2.5% were scrapped (as both of those numbers were met). Despite the improved economic data, the Fed remains extremely hesitant to raise rates for the first time since 2006 and risk disrupting the economic recovery.

    From a technical perspective, the S&P 500 remains well above its 50, 100, and 200 day moving averages. Interest rates remained well below their 50, 100, and 200 day moving averages, and we also observed a significant technical development during the month of May in the 10-year treasury note - a bearish (downward) crossover of the 100 and 200 day moving averages. This is viewed as a technical indication that interest rates may continue to decline; meaning bond prices would continue to go up. This would support the bullish position in long-term treasuries we first held in February and re-established in April as a place to over-allocate assets. To offer some perspective, the last bullish (upward) crossover occurred in January of 2013 when the 10-year treasury note was below 2%. Following that crossover, rates rose to as high as 3% near the end of last year, resulting in decreasing bond prices and losses for many core bond funds. Emerging markets continue to show strong relative strength - stronger than U.S. equities - therefore, we continue to hold over-allocated positions in emerging market stocks and long-term treasuries.

    Disclosure: The author is long EEM, TLT.

    Jun 11 1:55 AM | Link | Comment!
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