Second Quarter – 2016
“Hold the vision, Trust the process.”
What Target are You Aiming For? – Planning Commentary
This sketch is NOT condemning a decision to purchase an expensive car! On the contrary, the intention is to cause us to consider our true motivations. We would likely all be disappointed late in life if we couldn’t/didn’t accomplish what matters most because we wanted to impress our neighbors…or anyone else.
As life’s journey continues, know that your planning team stands ready with wonderful technology, skills and experience to help you take action towards what’s really important in your life.
Forward Thinking – Investing Commentary
The dust is now settling on a volatile start to the year as well as a rough 12 months. Over the last year, we’ve seen equity markets exhibit an unusually high correlation to the price movements of oil, a trend which we don’t believe continues indefinitely. In mid-February, the S&P 500 Index was down more than 10% before rebounding and finishing the quarter up 1.3%. Price appreciation in oil and metals seems to have helped fuel the recovery in stock prices over the past seven weeks along with easing fears of an impending recession. Emerging stock markets turned in a strong quarter as energy and other commodity prices moved higher, the U.S. dollar declined modestly, and concerns about higher U.S. interest rates abated. Bond prices were positive this quarter due to extremely low global interest rates and our Federal Reserve taking a much more cautious approach towards future interest rate increases.
As we move forward, we’d like to share some of our thoughts and observations on the markets and economy.
- We believe recession fears have been overblown. Although we have seen a few pockets of weakness, most notably in new construction starts and the manufacturing sector, a majority of economic indicators are still pointing higher, and the service sector remains strong.
- We don’t see any glaring economic or financial market excesses on the immediate horizon. The unemployment rate continues to fall, labor market participation is showing an uptick, and consumers and businesses alike have benefited from lower oil prices.
- We believe profits for businesses with a high percentage of sales generated internationally should begin to benefit from a slightly weaker U.S. dollar. Also, if the price of oil holds at current levels, profits in the energy sector should be helped as well.
- Accommodative monetary policy in Europe, Japan, and China should gradually improve the prospects for global growth. It does seem to us that a primary and unspoken objective of very aggressive monetary policy is to further depress currency values to maintain a competitive export advantage on global markets.
- We are concerned about the unintended consequences of negative interest rate policies being implemented by central bankers in Europe and Japan.
- We are mindful of the possibility for external shocks, such as a hard economic landing or significant currency devaluation from China or further geopolitical unrest which could cause ripple effects throughout the global economy.
- Stock market valuations, by most measures, seem fair in the U.S. and point to cheaper levels internationally.
- Uncertainty about the outcome of the Presidential election could increase market volatility as we move closer to November.
- While our view for a recession over the next year is low, we continue to recommend a diversified portfolio of assets as the preferred way to weather market volatility while achieving long-term investment goals.
If you haven’t had a chance to read our three-part series covering the guiding principles of our investment process and its relevance for you, we invite you to click on the links below to learn more.
Thank you for the continued trust you have placed in our team. We welcome your questions and comments concerning your investments.