401k Update for July

Welcome to the summer! June was a great month for the model with the S&P 500 index up 1.9% and the outlook for July remains positive. Let’s start with the returns for the major market indexes in June:

  • Dow Jones Industrial Average – up 0.65% (June) &  up 1.6% (YTD)
  • S&P 500 Index – up 1.93% (June)  &  up 6.1% (YTD)
  • NASDAQ Index – up 3.9% (June)  &  up 5.54% (YTD)
  • Russell 2000 Index (small cap) up 5.15% (May)  &  down 2.52% (YTD)

The start of the summer did nothing but heat up the markets across the board indexes. The Russell 2000 Small Cap index led the way higher gaining more than five percent to put it back into positive territory for the year. The NASDAQ gained nearly 4% and playing catch up to the S&P 500 index which also posted a positive month.

What was the primary driver for the indexes to move higher last month? The belief in the Fed is still the driver for markets overall. The projected growth in the economy is 4% for the second quarter and we will find out in the coming weeks if that actually took place. Thus, we enter July optimistic, but guarded. The economic data we have reviewed failed to meet those expectations for growth. Of course Ms. Yellen (Fed Chairperson) stated in the last FOMC meeting that the growth may get deferred into the second half following such are harsh winter. The funny part of that statement is how both Wall Street and individual investors believe it. Sounds logical right. Well that is what she is hoping for the delay return program on an economy that seen the most lethargic recovery ever in history following the 2008 correction. As you can see on the chart below of the S&P 500 index, trend gap (distance between the close on June 30th and the current trendline) is now 4.3%. When this gap widens the index is at risk of a test, pullback or correction, however you would like to phrase it. Thus, we have to be on watch going into the month.


If you follow any of our daily posts you know we are not in love with the fundamental data of the market currently. The catalyst to the trend off the April 11th test has been essentially the prognostication the economy is going to start growing fast enough to accommodate interest rate hikes from the Fed and withdrawal of stimulus in the form of Quantitative Easing. The withdrawal has been progressing nicely at each FOMC meeting and should be done by November. The rate hike for interest rates on the overnight Fed funds should be between the second and third quarter of 2015. But, you knew there would be a but! The economic growth is going to have to progress beyond the 2% mark and meet the projections of the Fed if we are to get to the expected destination. The cartoon below states the relaxed attitude of the investor today… and to some degree Wall Street. We have to be diligent at watching how this unfolds going forward.


Being this is the end of the second quarter it is earnings season again. Below is the text from our updates in our last weekly update which address the forecast for earnings. It is important we see beneath the surface of what is reported to determine how much growth we are truly experiencing in the overall earnings.

“The Third phase of the story line is earnings, or declining growth in them quarter over quarter. First quarter data was not good overall in real data. However, the spin by analyst kept investors looking forward not back. The rate of decline in earnings is the primary concern from my view. The focus from the media is the number of companies that beat expectations, but the rate of growth in earnings will determine the rate of growth in stocks looking forward. The quarter is over and now we get the report card, good or bad. Earnings are and remain a concern for investors longer term.”

Is there a correction on the horizon? I would have to say yes,at some point, but attempting to be prophetic about when and how much will give you grey hair or make you pull it out. For that reason we believe it is best to stay the course and let the trend unfold one day at a time. Since the April 11th test of the low we have seen a positive renewal in the uptrend. Thus, we will go with the trend until it stops and then we will make the necessary adjustments.

Just as the war in Russia with the Ukraine never developed, the recent headlines about Iraq have lost track of the potential geopolitical mess it may create. Oil prices have definitely been effected with a move to the $105 level. Gasoline for the 4th of July holiday will be the highest in over six years. Speculation is pushing the prices higher. This is another issue we will have to address moving forward as higher fuel costs hit everything and that translates into less discretionary income for the consumer. When you consider that income levels have actually declined since 2009 we are not positive on this front either.

As seen on the chart above the resistance near the 1900 level on the S&P 500 index gave way on the upside, and as we started this post, gained 1.9% for the month closing at the 1960 mark. 2000 is not in sight and could be achieved this month if things continue to progress.

The leadership has come from technology, healthcare and energy sectors. The consumer has slowed again, but retail did make a move back to the upside the last week of the month. The downside pressure has come from basic materials and consumer staples. We are still looking for the financial stocks to make a contribution on the upside, but the continued overhang from lawsuits and government regulations is keeping the sector in check.

The revival of the small cap stocks in June was a plus for the markets overall. They are a barometer for the growth side of the markets and the biotech have been the primary catalyst in the sector. We will continue to watch how all of this unfolds short term, but it is the longer term perspective we have to maintain… and for now that is on the upside.

Be patient and most of all be disciplined.

The following is our current allocation for 401k portfolios:

  • 100% of assets allocated to the S&P 500 index funds. For our allocation we are using the Fidelity S&P 500 Index Fund (FUSEX). We have held this position since the start of the year with no changes.
  • Jan 1st NAV = $65.20
  • June 30th NAV = $69.82 (change YTD = +7.1%)
  • Current Allocations from Paycheck (deposits) = 100% Fidelity S&P 500 Index Fund.

If you don’t have Fidelity in your 401k you will have a S&P 500 index fund that is similar with Vanguard or whomever the assets are managed by. If you need help simply send us an email with your list of available funds and we will tell you the best match to the allocation. Info@JimsNotes.com is the email address.

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Remember, investing is a journey towards a predefined destination. Sometimes the destination changes, but it will always be about the journey, and the discipline it takes to get there.