SET Portfolio Update May 2014
May 6, 2014
It’s that time of year again. You hear it every May.
That’s right, it’s time to ‘Sell in May and go away’. I’ll see you all in October when it’s safe to invest again!
Just kidding…
It’s true that the weakest six month stretch from May to October is historically a weak time of year for the S&P 500. Since 1928, the S&P has an average gain of 1.9% over that time while the six month stretch that ends in April averages 5.1%.
But it doesn’t always work as planned. Just last year, the S&P 500 was up 10% from May to October.
What’s more, there’s reason to be optimistic the S&P 500 will defy the odds and outperform the historical average again this year.
In short, the economy is showing signs of a cyclical upturn.
The private sector of the US economy has been growing and hiring new workers. But those gains have been partially offset by shrinking payrolls at the federal, state, and local levels of government.
In other words, job creation has been like driving with one foot on the accelerator while the other foot is on the brake.
Many of these government job reductions were necessary because the weak economy resulted in lower tax revenues. But tax revenue has rebounded along with the economy this year.
In fact, federal tax revenues hit a record $1.32 trillion in the first half of fiscal 2014.
The impact of increased cash flow from tax receipts means fewer government job cuts over the 2nd half of 2014 than what we’ve been accustomed to since 2008.
As the drag from the loss of government jobs lessens in the months ahead, we should see overall job growth accelerate. And that should provide the kick start to economic growth and bullish momentum for stocks.
And don’t forget about the Russia/Ukraine situation. It has put many investors in a ‘wait and see’ mode. They simply don’t want to put money to work as long as this situation threatens to impact the global economy.
A peaceful resolution in Ukraine would certainly fire up investors’ risk appetite.
Now, onto the updates…
. . . . Market Vectors Unconventional Oil & Gas ETF (FRAK) – Buy up to $32.00
Our most recent trade is off to a nice start. Oil and gas production in the US is booming like never before. But the big companies, like Exxon Mobil (XOM) andChevron (CVX), are late to the party. Now they’re trying to play catch up. The influx of money from these energy giants should provide a boost to FRAK in weeks and months ahead.
. . . . Financial Select Sector SPDR (XLF) – Buy up to $22.25
Financials have taken a step back as the situation in Ukraine escalates. Needless to say, the threat of conflict and economic sanctions is a threat to the global financial system. What’s more, financial stocks’ earnings in the recent quarter failed to live up to expectations. Financials clearly haven’t figured out how to boost profits in this era of increased regulations. But I expect that to change in the second half of 2014. Grab your shares up to our $22.25 buy up to price.
. . . . Guggenheim Solar (TAN) – Hold
TAN has been on a crazy ride this year. The shift away from momentum growth stocks has taken the wind out of TAN’s sails… but this should only be temporary. TAN is holding above support of the uptrend connecting the previous lows. And it should move higher from here. Continue holding.
. . . . First Trust Consumer Staples AlphaDEX Fund (FXG) – Hold
FXG is within 1% of the 52-week high. Our consumer staples ETF has benefited from the rotation into value stocks. It should continue moving higher from here… Continue holding for bigger gains.
. . . . PowerShares Dynamic Leisure and Entertainment (PEJ) – Hold
PEJ has gone through a 10% correction off March highs. The rotation out of growth stocks has certainly taken a toll on PEJ. But the trends in employment and income growth bode well for increased consumer spending in the months ahead. Continue holding.
. . . . PowerShares Dynamic Media Portfolio (PBS) – Hold
PBS has suffered through a dismal start to 2014. The bullish momentum behind last year’s top performing consumer discretionary ETF in 2013 has disappeared. It’s now down 10% year-to-date. The silver lining is we’re still up 4.5% from when we recommended buying it. But we need to see investor sentiment toward consumer stocks change before it rebounds. Continue holding.
. . . . iShares Transportation ETF (IYT) – Hold
IYT has been one of the strongest ETFs lately. It just made a new high last week. This is a clear indication investors are focused on investments that benefit from accelerating economic growth. Transportation stocks will be a huge beneficiary of faster economic growth. Continue holding…
. . . . First Trust Global Wind Energy (FAN) – Sell
FAN is right at the 52-week high. This ETF has been a strong performer and it’s time to take our 28.5% profit off the table. Sell FAN now. Congratulations on a successful trade!
. . . . First Trust NASDAQ ABA Community Bank Index Fund (QABA) – Hold
QABA has been hurt by the reversal of interest rate expectations. Just a few months ago, QABA was soaring higher when investors expected interest rates to begin climbing higher within the next year. But low inflation and headwinds from government job cuts have pushed out the time frame for higher interest rates. And QABA has quickly given back its recent gains. Nevertheless, interest rates will go up sooner or later. And when they do, QABA will be off to the races again. Continue holding…
. . . . Morgan Stanly Cushing MLP High Income Index ETN (MLPY) – Hold
MLPY is another ETF benefitting from increased production of oil and gas in the US. The more oil and gas that moves through the pipelines, holding tanks, and other MLP assets, the more money they make. Continue holding.
. . . . iShares DJ US Home Construction Index Fund (ITB) – Hold
ITB has taken a step back as homebuilder confidence has waned recently. One thing to keep in mind is interest rates for mortgages have fallen to their lowest level in months… just in time for the spring selling season. If new home sales surprise to the upside, we should see ITB rebound quickly. Continue holding.
Action To Take
- Sell First Trust Global Wind Energy (FAN) for a 28.5% profit.
Category: SET Portfolio Updates
