Last week market sentiment was decidedly negative. While the news has focused on turmoil in emerging markets (not a factor), the real question is economic growth in the U. S. As I have said many times, corporate earnings have to be strong in 2014 to justify current market values. Last week’s sell off centered around a PMI report that came in much weaker than expected. My feeling was that the market did not fully consider December’s bad weather, and the affect of mid-week Christmas and New Year’s holidays. This week we have seen some stabilizing technical indicators that imply the market is holding at these levels and is due a rebound.
In response, for our Dividend and Growth Strategies we have sold off a fixed income position and purchased Ford (F), Altria Group (MO), and GE (GE). I have avoided owning tobacco stocks for 27 years, but at current valuation and a 5.65% yield I had to jump on MO. GE is one of my favorite stocks, and looks better now after an 11% decline and a 3.59% dividend yield. While Ford is more cyclical than I like, it has suffered an 18% decline and is cheap with a 2.72% yield. I am very bullish on the outlook for the aluminum bodied Ford F-150 pickup truck.
While these purchases over allocate us to equities, I expect to re-balance in a couple of months if not weeks. I’m comfortable that we can ride through a correction due to our relatively high dividend yields and low valuations across the portfolios. If we see the short term rally I expect, we’ll take profits and reallocate back into our 20% fixed income position.
Bill DeShurko 