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Our article is from The Wall Street Journal this week and takes a look at the current bull market.

Regards,
Sam

Stocks Recover, but Face a Rough Ride

Bull Markets Historically Become More Volatile as They Age, Analysts Say

By Gregory Zuckerman

Just a few weeks ago, markets were tumbling and investors were running scared. Now they're rushing back in, assuming the coast has cleared.

Have investors dodged a bullet on their way to another year of big gains, or will emerging-market troubles and other worries rear their ugly heads and forestall a comeback for stocks?

Though the market isn't at expensive levels and many of the recent economic concerns in the U.S. could be explained by a harsh winter in many parts of the country, investors need to buckle up for more uncomfortable twists and turns, analysts say.

The year began with most analysts predicting good things for stocks. The market soon hit an all-time high in January. But investors became nervous as emerging markets crumbled, amid worries that these countries are both too indebted and too reliant on outside capital. The S&P 500 index tumbled 5.8% from mid-January through early February, as fears grew that the troubles abroad would pose an obstacle to U.S. growth.

Housing Weakness

Data on the U.S. economy also have been troubling. U.S. housing starts fell 16%in January, a sign that the housing market, which helped power the economy last year, is experiencing sudden weakness. The median price of an existing home sale was $188,900 in January, down from $197,700 in December, though up 10.7% from a year ago.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, says of the housing data that "the trend is downward, but the weather surely played a big part in this drop."

Other reports have pointed to softness in the job market, manufacturing and consumer spending. Barclays Research now expects the U.S. economy to grow by an annualized 1.9% in the first quarter, below the 2.2% pace the bank expected just over a week ago.

Despite those headwinds, stocks are on a roll. The S&P 500 has recovered from its earlier decline and now stands just 0.7% away from a record.

The Dow Jones Industrial Average, likewise, has recovered most of its early fall—off just 2.9% from its Dec. 31 record.

The resiliency comes as the bull market is poised to celebrate its fifth anniversary next month.

There's cheering elsewhere as well—global junk-bond demand is at all time highs, according to Bank of America, another sign that investors are again comfortable embracing riskier investments.

Reassuring investors: Fourth-quarter earnings have been stellar among the 80% of S&P companies that have reported. They're up 9.6% from the comparable quarter in 2012, according to Thomson Reuters, though revenue growth has been just 1.1%. Stocks have risen an average of 0.84% immediately following earnings reports—the biggest average gain since the middle of 2009, according to Bespoke Investment Group, a New York research firm.

A Harsh Winter

Bullish investors are betting that weak

economic data are largely due to an

unusually rough winter and that growth will pick up as the weather warms.

Bill Butcher

"If interest rates rise gradually and economic growth accelerates—as we expect—the powerful bull market isn't likely to lose steam," says Robert Brown of asset manager AllianceBernstein.

He argues that stocks are more attractive than bonds and notes that household net

worth and the free cash flow of corporations are at record levels, reasons not to pare

stockholdings.

"Consumer-spending growth and earnings increases appear likely in 2014 but not as

powerfully as investors were considering entering 2014," says Tobias Levkovich, chief

U.S. equity strategist at Citigroup. Analysts expect earnings growth of 9% for so-called consumer-discretionary stocks, such as hotel, restaurant and media

companies, down from 13% a few months ago.

Alan Zafran, managing director at First Republic Investment Management, notes that

stocks carry dividend yields higher than bond alternatives—one more reason to stick

with stocks.

But investors should prepare for more volatility, analysts say. For one thing, last year

was unusually calm for financial markets and this year already is proving quite jumpy.

The S&P 500 has posted nine one-day moves of at least 1% in 2014, twice the number

that occurred by this time last year.

Sam Stovall, chief equity strategist at S&P Capital IQ, says bull markets historically

become more volatile as they age and investors become nervous about how long the

good times will last. In particular, Mr. Stovall's data point to a rise in volatility during the

fifth year of bull markets.

"I don't think we've seen nearly the worst of the market weakness," says Uri

Landesman, president of New York hedge fund Platinum Partners. "The market has

been straight up for five years, buoyed by a historically supportive Fed, and that is going

to change."

Few Stock Bargains

The S&P trades at a price-earnings multiple of 15 based on expected earnings over the

year, and 16.1 times earnings over the past year. Those aren't expensive levels, but they also aren't bargains.

Indeed, some veteran investors say it's become harder to find attractive investments, a

reason for caution.

"We're finding it extraordinarily difficult to find bargain securities, perhaps more so than

at any time since I began running a fund" in 2002, says Zeke Ashton, who runs Southlake, Texas, investment firm Centaur Capital Partners.

Reasons for enduring caution are many. As the Federal Reserve reduces the stimulus

it's providing the economy, investors could turn more nervous.

European economies remain weak and could experience a new round of troubles,

despite their own stock rallies, some analysts say. The Japanese rally might fizzle and

China's economy could demonstrate new weakness.

"Investors give China's authorities the benefit of the doubt and trust that they will avoid a

financial accident and a disorderly slowdown," says Morgan Stanley economist Joachim Fels. But he says potential troubles in China are among the "few things I worry about more than the consensus."

Rather than sell stocks on the heels of the recent rally, the best strategy for investors is

to hold ample amounts of cash and wait for bargains before pouring more money in,

some say.

"We were able to buy some things a couple of weeks ago during the heat of the selloff,"

says Centaur Capital's Mr. Ashton, who says he is waiting for the next opportunity to

buy cheap stocks, from a market downturn or other event. His portfolio is nearly 30% in

cash.

Gary Evans, a former trader and author of the Global Macro Monitor blog, says "the

U.S. is in relatively good shape but the year will be much more volatile than 2013." He's

looking for "a few more and deeper corrections around the change in monetary policy.

Remember the adage: three steps and a stumble."

When markets get rocky, Mr. Evans recommends buying shares of energy producers,

which are enjoying a surge in production, along with health-care stocks and some

technology shares.

Sam Sweitzer, CFA │Principal│ANSON CAPITAL, INC.│
o: 678-216-0795│f: 877-750-9088│sam@ansoncap.com│www.Ansoncap.com│
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