In January we said we expected more volatility in 2015 and the market has not disappointed.  The S&P500 was down -3.10% in January, up 5.49% in February and then down again in March -1.74%.  It has been so back and forth that it recently took 28 days for the S&P500 to have back to back up days.  A streak this long has only happened two other times since World War II.  So what about April?  Well we are up again as of today and only slightly below the March high.  April is the best month of the year for the last 20 and 50 year periods and has averaged a 2.78% increase over the last twenty years.  There have also been more 12-month market highs made in April than any other month since the year 1900.  The DJIA has been up nine straight times in April since 2006 and has averaged a 3.1% return.

Unfortunately the kind of volatility we have witnessed recently brings out the fear mongers and comments about the market being a casino, etc.  Here are some interesting facts since 1926:

* The S&P500 has had an up year over 73% of the time (Better than Vegas odds)
* For 5 year periods, the market was up 86% of the time and was never down over 20%
* For 10 year periods, the market was up 95% of the time and was never down over 5%
* The S&P500 produced a 10.08% annual return (including dividends) from 1926
through 2013
* Of the four losing 10 year periods, two were recent ending 2008 and 2009. Prior to
that the only other 10 year losing periods ended 1938 and 1939.

Back to the present; the market has been up six straight years since the devastation ending March 2009.  The market does not go up forever or in a straight line.  For longer term investors, the above facts should cause some comfort but, it is also noteworthy, only six times in its history has the S&P500 had consecutive down years.

We remain bullish intermediate and longer term and as we mentioned last quarter; when S&P500 rolling 10 year returns rise through the 10% level, stocks added an average of around 15% a year over the following decade.  This occurred two other times in 1950 and 1983 created amazing bullish moves.  Will history repeat itself?

Back to basic fundamentals:  Corporate earnings continue to rise and are reasonably priced, interest rates remain low and there is still plenty of skepticism that can provide fuel for further advances.  Digging deeper, earnings expectations this quarter are down due to a 62% decrease in earnings expectations for the oil sector.  Also, the tremendous rise in the dollar will have some impact on multi-national corporate earnings.  However, as is typical, expectations have been slashed to a point where we believe earnings will again exceed consensus.  Remember, the market does not move on nominal numbers but, rather how they compare to what was expected.

There is simply no competition for equities at this point.  Banks are paying nearly 0.00% and there is obvious interest rate risk in the bond market.  Yes, the market will remain volatile but, we expect dips to be bought and further upside ahead.

As always, thank you for your trust and confidence.

Royal Fund Management