The first quarter is coming to a close and if someone was in hibernation for the past three months, they did not miss much as it relates to the stock market.  The Dow Industrials are up just under 1% so far this year (including today’s big market move higher).  We did experience some volatility during the quarter though as there were 16 days with 200+ point moves (6 down and 10 up).  Volatility has returned since the end of Quantitative Easing.  The markets are in a tug of war as declining corporate profits from a strong dollar compete with cash investments yielding 0%.

Other asset classes experienced volatility as well.  After the large drop in oil prices in the fourth quarter of last year, oil continues to see daily volatility with moves up or down by 3-4% not uncommon.  The Euro continues to fall with a drop of over 10% in value versus the dollar.  As long as the Federal Reserve doesn’t implement another round of quantitative easing, investors should expect ongoing volatility.

What does this mean for portfolios?

Volatility can be a friend or an enemy.  Investors investing with a long time horizon will benefit from buying assets that have been beaten down.  Those trading on a daily basis are getting whipsawed and this is causing some major headaches for those traders.  For example, we believe that oil prices will rebound from these levels over the next two to four years.  Volatility in the energy sector offers us the opportunity to buy these assets at what we believe is a below market price.  Could a barrel of oil go down in price from current levels?  Sure, especially if oil falls below $40 a barrel.  However, over a two to four year time horizon, we believe the energy sector will be one of the best performing areas of the stock market.

Book of the Month – “Flash Points – The Emerging Crisis in Europe”, George Friedman

The old saying that “those who do not learn from history are doomed to repeat it” seems more apt today than ever when looking at the world.  In Asia, Japan and China fight over deserted islands.  In the Middle East, the Sunni vs. Shia rivalry is front and center with Saudi Arabia’s recent bombings.  In Europe, it is Russia and Ukraine taking the spotlight.  All of these flash points are rivalries that go back for centuries.  In this book, George Friedman gives a brief history of Europe and discusses the many flashpoints of Europe outside of the current Ukraine/Russia conflict.  Europe has been fairly quiet since War World II, but that is not the norm.  Could one of these flash points change the face of Europe like the assassination of Franz Ferdinand, the archduke of Austria-Hungary, did in 1914?  No one knows for sure, but one saw sparks when the new prime Minister of Greece’s first official act was to lay flowers at the tomb of Greeks killed by the Nazis during World War II.  He is playing on a long history that Europe will not forget.    

Sincerely,

Your THOR Team

THOR Investment Management, Inc. is a registered investment adviser with its principal place of business in the state of Ohio.  The commentary contained in this market update is limited to the dissemination of general information pertaining to THOR’s wealth management services.