May 2014 Market Summary and Analysis [SPDR S&P 500 ETF Trust, PIMCO ETF Trust]

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June 2, 2014 1:08pm NYSE:BOND NYSE:GLD

new etfsDavid Fabian: The month of May was marked by uncharacteristic strength on the upside which took many investors by surprise. The SPDR S&P 500 ETF (NYSEARCA:SPY) finally broke out of its trading range that I indicated on my latest chart review


video (see below). This resolution to the upside was spurred on relatively low volume and in the face of weak economic data. GDP and consumer sentiment indicators came in lower than expected this week, but the market seemed to shrug off the news and is marching higher.

SPY has jumped just over 2% in the month of May and is now sitting on a 4.5% gain for the year. With nearly half the gains for 2014 coming in just the last few weeks, many investors that have been on the sidelines may feel like they have missed out and don’t want to chase the new highs up here.

I certainly don’t blame them as adding new positions at all-time highs can be difficult in the face of a potential correction. However, making sure that you are disciplined enough to have some exposure on to stay with the trend is always a prudent course of action so that you don’t get completely left in the dust.

spy

In other news, the bond market has been making waves for ignoring the direction of stocks and continuing to trend higher. Yields on the 10-Year Treasury Index have now fallen near their lowest levels of 2014 and even a broad based bond fund like the PIMCO Total Return ETF (NYSEARCA:BOND) was able to post a respectable return of 1.3% in May.

Guess what BOND has returned so far this year? Answer: 4%. Keeping some fixed-income exposure has produced returns nearly on par with the stock market this year and exhibited less volatility. Right now I am continuing to hang on to my existing fixed-income and equity positions for clients until we see a change in trend that warrants taking action in defense of our capital.

bond

If you are looking for some bad news, take a look at a chart of the SPDR Gold Shares ETF (NYSEARCA:GLD). This has probably been one of the most frustrating trades of the yearfor precious metals investors.

Unless you have been playing GLD with short-term trades and tight stop losses, this has been an area that has continued to breakdown since the March high. We are avoiding the precious metals sector at the moment because it doesn’t exhibit a favorable risk-to-reward setup for our growth clients.

gld

The bottom line is that volatility is low, volume is low, stocks and bonds are soaring, and trying to rationalize it will only make your head hurt.

How long can this insanity last? A lot longer than you can stay solvent.

We are nearing the middle of the year that typically lends itself to heightened volatility. My advice is to stay balanced, continue to refine your watch list for additional opportunities, and check out this video below for additional market thoughts.

This article is brought to you courtesy of David Fabian from FMD Capital Management.


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