Weekly Update

Weak economic data, concluding with a penurious jobs report, instigated a broad-based market sell-off led by crude oil (dropping over 6% to $94.98 a barrel) and the Russell 2000 (losing 4.07%). This pullback was fairly predictable, as the Dow hit a new four-year high earlier in the week.  However, it is possible that equity markets may not have bottomed out; considering that business news is expected to be light this week, investors will once again focus on jobs and the implications related to the French election of socialist, Francois Hollande.

Market performance for the week ending 5/4/12

On a positive note, the U.S. does not seem to be cascading back into a recession; falling oil prices are giving Americans a collective pay raise; job creation is a lagging economic indicator, and this is an election year, which historically results in a solid performance for stocks.

Over the past two years, equities have essentially underperformed from April through October. Consequently, if you are overweight in “risk on” positions, consider shedding some pounds for spring. Since market timing does not work, do not overreact by completely pulling out of equities. Ironically, the best time to purchase equities is often when the market seems destined for disaster, so for now, it is best to remain cautious, but not panic.

As suggested in last week’s update, I executed the following changes in “Marea’s Growth Portfolio,” reducing equity exposure to from 86% to 70%.

• Sold out of RYF
• Reduced DIA by approximately 3%
• Reduced RFG by approximately 5%
• Reduced SPY by approximately 4%
• Opened a new position by adding 12% to iShares Barclays Aggregate Bond (AGG)

Marea’s Growth Portfolio

Despite the market downturn, my two conservative portfolios performed fairly well last week. Conservative Portfolio #1 dropped 0.97% while Conservative Portfolio #2 suffered a loss of 1.18%.

As stated earlier, I continue to recommend being cautious and prefer to limit cash to 10% or less.  If selling stocks, add the proceeds to short and intermediate bonds that hold a concentration in corporates. Options to analyze include the iShares Barclays 1-3 Year Credit Bond (CSJ, 1.81% dividend yield), the iShares Barclays Intermediate Credit Bond (CIU, 3.6%), and the iShares Barclays Aggregate Bond (AGG, 2.82%). Unless you are investing a minimum of $100,000 in each fixed-income security, focus on open-ended mutual funds and exchange traded funds.

Should you decide to slowly increase exposure to equities, as I began to do on Friday, carefully limit buys to large caps offering dividends. Specific sectors of interest are housing and retail.  My current list of long term buys include iShares Dow Jones Select Dividends (DVY, 3.37%), SPDR Dow Jones REIT (RWR, 2.92%), PowerShares Financial Preferred (PGF, 6.83%), Stanley Black & Decker (SWK, 2.30%), Snap-on Inc (SNA, 2.18%), McDonalds (MCD, 2.92%), Costco (COST, 1.15%), Macy’s—earnings to be released on Wednesday (M, 1.95%), Cinemark Holdings (CNK, 3.60%) Abbott Labs (ABB, 3.27%), and Annaly Capital (NLY, 13.46%).

Please note that May is not regarded as a great month for equities. Buy the recommended positions above to replace high flyers in your portfolio, and do not forget short and intermediate term fixed-income products. Growth was hot in the first quarter, but dividend producers, which performed well in April, will likely continue to gain ground on growth stocks over the next several months. I also suggest that growth-oriented investors should limit equity exposure to approximately 70%. More conservative investors should not hold more than 50-55% in equity at this point in time.

Despite all the doom and gloom rhetoric, I am still bullish on 2012 and expect broad market indexes to achieve new highs by the end of this year.