Market Commentary: April 2016
I am very happy that spring has arrived, but I honestly needed a snow storm this week.
Staying abreast of the latest news is challenging to say the least and staying abreast of
the relevant news is even harder. Yet, sifting through the loads of information
proffered by the media to discern the important pieces is one of my favorite
responsibilities in serving you. Quite simply, it is fun for me. However, the difficulty
comes when I need to synthesize a few of those important pieces into a two-page
commentary! A good snow storm with its quiet disconnectedness would have
provided the perfect setting to write this note to you. Instead, it is beautiful outside and
the news is changing swiftly so let me jump right in before I have to start all over.
In the first six weeks of the year, the stock market declined about 14% only to climb
back up and finish the quarter a little above where it had started. The sharp rebound
was largely the result of diminished recession fears and consumers starting to spend
some of the savings gained from low gas prices. Before I get ahead of myself, let’s look
back at the quarter and the last 12 months in the chart below.
Benchmark Index
U.S. Stocks
S&P 500
U.S. Total Stock Market
NASDAQ
3 month
return
0.8%
0.4%
-2.7%
International
Stocks
Fixed Income
DJ World (ex. U.S.)
-1.0%
-10.3%
1.3%
4.5%
0.2%
0.5%
3.9%
2.5%
0.0%
-0.71%
Short Term Bonds
TIPS (Treasury Inflation Protected
Securities)
Intermediate Term Bonds
Aggregate Bond Market
12 month
return
-0.4%
-2.4%
-0.6%
Though the quarter brought about a lot of movement, stocks ended relatively flat with
the exception of the technology heavy NASDAQ which was down almost 3%.
Similarly, stocks were marginally down for the year except for foreign equities which
started their recovery in the middle of January, a full month ahead of domestic stocks,
but still ended down 10%. Where individually appropriate, we used this volatility to your
benefit – rebalancing to purchase more stocks. Fixed income had a strong three months in
spite of the December interest rate increase, just enough to bring returns back to near
zero for the year.
Grove Street Fiduciary, LLC
Wealth and Trust Advisors
www.GroveStreetFiduciary.com 800.258.9939
I had hoped after the Federal Reserve raised rates in December that we could finally
shift the focus away from central banks to discussions about economic fundamentals
including the very bright emerging markets outlook. Instead, just the opposite has
occurred. We are now drawn back into monetary policy concerns with a wave of
negative interest rates (charging customers to hold cash) used by Europe, and more
recently Japan, to reinvigorate their economies. What will be the impact on portfolio
returns? So far, stocks in both places have applauded the negative bank rates. Here at
home, it likely means the Fed will not be able to raise rates much, if at all, this year.
The financial markets have plenty of concerns to sift through: lower corporate earnings,
China, a possible British exit from the EU, ISIS threats, and of course the U.S. political
environment. [Speaking of the election, typically markets do not pay much attention
until there are two candidates squaring off with actual proposals to consider.] Despite
these fears, the fundamental outlook for growth is still good. For starters, several basic
conditions needed for a recession are not present, namely rapidly rising wages,
inflation, and interest rates that are too high. When it comes to global growth, while
Europe and Japan will be near zero, the U.S. is projected to have a respectable 2.4%
growth and India and China will expand at 7.5% and 6.5% respectfully. In short, the
global economy in 2016 is projected to be stable – a solid background for a global portfolio.
Sifting through news and information has something in common with doing your taxes;
it is much less about what you make and all about what you keep. If you are not
particularly selective about the sort and sum of information you consume, since much
of it is fodder for emotion and empty of knowledge, you will not end up with much.
On the other hand, like much of life, if we are disciplined and wise in our strategy, we
will keep more of that which is important.
Thank you for your continued trust. May you enjoy a wonderful and healthy spring!
“A strategy without tactics is the slowest route to victory. Tactics without strategy is
the noise before defeat.” – Sun Tzu, Chinese military general and philosopher
Best regards,
Carl Amos Johnson, MBA, CFP®, AIF®
April 19, 2016
Grove Street Fiduciary, LLC
Wealth and Trust Advisors
www.GroveStreetFiduciary.com 800.258.9939