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Current Views

Thoughts on the Five-Year Bull Market

The stock market had a solid first half of 2014, with the S&P 500 Index appreciating 7%. This follows a torrid 32% advance in 2013 and a total return of 137% over the last five years. Presently, market volatility is at its lowest point in the current cycle and is approaching levels last seen in February 2007. Investors are asking: Is the market toppy? Can these conditions persist?

We believe the current bull market has several key underpinnings. These include accommodative monetary policy, slow and steady economic growth, high corporate profit margins, and reasonable valuations. In our view, all remain in place, so we expect the bull to continue to run. One notable change this year has been more policy certainty, following the transition to Janet Yellen as Federal Reserve Chair and the bipartisan budget deal in December, which we suspect partly accounts for the lower volatility.

Nevertheless, at some point this bull market will end. In our view, the leading candidate to derail the expansion is persistent, above-trend inflation, which would threaten both the accommodative stance of the Fed and the sustainability of current corporate profit margins. We also have some concerns about imbalances in the Chinese economy as well as the potential for an oil supply shock, since various energy producing nations are experiencing political unrest or even armed conflict. While we are monitoring these risks closely, we do not expect them to derail the bull market in the near term.

Currently, we are focused on corporate earnings season, which began July 8, 2014 with Alcoa’s second quarter report. Following the 5% market return in the second quarter and with volatility declining, we believe share prices broadly anticipate companies to meet or exceed estimates, while providing guidance on promising future outlooks. There is the potential for trading to become choppier if these expectations are not met. Overall we believe we have positioned the portfolio to participate in a rising market with the potential to outperform based on our thematic approach and stock selection. Should we perceive a material threat to the bull market, we are well versed in protecting investors’ capital through our risk management capability.

Submitted by: Jason Benowitz, CFA

Source: Bloomberg, The Roosevelt Investment Group

The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Indices are unmanaged, may include the reinvestment of earnings, and may not reflect transaction costs or management fees and other expenses. Unlike indices, the strategy is actively managed and may include substantially fewer securities than the number of securities comprising the indices, and may have volatility, investment and other characteristics that differ from the strategy. Investments cannot be made directly into an index.

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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