Global financial markets continued to move higher, supported by an improving outlook for global economic growth. Volatility remained near record low levels despite persistent geopolitical tensions, tightening U.S. monetary policy and particularly destructive natural disasters. We present a few highlights from 4Q17 below: U.S. equity markets continued their bull market run during the fourth quarter as the Trump Administrations tax reform proposal took a step closer to approval, offering a boost to overall investor sentiment. The SP 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite each hit all-time highs during the quarter. On the economic front, preliminary estimates indicate third quarter GDP grew at the fastest pace in three years amid strong business investment. Developed international equity markets were also positive during the fourth quarter, driven by improving earnings growth and general economic expansion. Strong gains came out of the Pacific region,
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This year the stock market is off to one of the worst starts in history. As expected, volatility is heightened and intensified by tumbling oil prices. Despite the widespread market decrease, there still are areas that are performing better than the SP index; for example, utilities (part of our conservative models) have been up around 6% year-to-date. Many of the bond funds have also been pulling their weight showing positive returns and continuing to pay interest. Even with the decline in January, analysts still believe we are in a mid-cycle market and that a domestic recession is not currently in the forecast. As the year goes on, we expect oil and other volatile sectors to begin to stabilize and become worthy areas in which to invest. We have seen some improvement with an uptick in the SP 500 at the end of January and a few positive days so far in February. It is also important to keep in mind that we have built some defenses into the current investment models. Diversification The
The China fears have crept back into world markets, as concerns about U.S. economic weakness have increased. While U.S. stocks are facing a fast and sharp correction, most analysts say they are still not expecting to see a fall of 20 percent that would signal a bear market. Markets have been spooked by Chinas stock market declines, but more so the drop in its currency. The yuan has been losing ground against the dollar since it was granted reserve currency status in late November. The fear is that China will export deflation with the devalued yuan. Oil prices have been another nagging worry for stocks, and this week U.S. crude futures plunged 10 percent, touching 2003 lows briefly Thursday. Last we checked, however, the Dow Jones and SP 500 indexes were composed of U.S. companies that might do some business in China, but still earn the vast majority of their revenue elsewhere. And elsewhere, economic fundamentals are looking way better than the gloomy start to this years trading would
The most anticipated financial question of 2015 was finally answered in December. The Federal Reserve said that it would raise short-term interest rates for the first time since the financial crisis. It raised the benchmark interest rate by 0.25 percentage points, to a range of 0.25% to 0.5%. You can look at this as a vote of confidence in the strength of the American economy at a time when much of the rest of the global economy is struggling. For a year that was supposed to be characterized by accelerating growth in the world economy, 2015 was slow to get out of the starting blocks. So instead of the global economy growing by half a percentage point more than in 2014, the outcome has been largely the same. This disappointing result partly reflects another poor first-half performance in the US. Looking ahead to 2016 There are many unknowns as we head into 2016, such as the pace of potential Federal Reserve rate hikes, whether other central banks will unleash more quantitative easing
Moving closer to the end of the year, we have evaluated and reflected on the fluctuations that have occurred within the market. It was no surprise that market volatility increased this year. A lot of the same concerning factors we had at the beginning of the year have continued to be a concern: oil price instability, possible action by the Fed to increase interest rates, and international turmoil (i.e., Greece, China, emerging markets, strong U.S. dollar hurting exports, etc.) These factors have created an increased level of volatility. In turn, these have also created a trading opportunity for us to realign the models with funds that show a history of navigating volatility and a consistent history of long-term performance. Within the last few weeks, the Dow Jones Industrial Average and the SP 500 dipped below the beginning-year numbers, so we implemented some changes inside our models. The overall focus is to manage the short-term volatility and focus on long-term portfolio growth. We
As the third quarter of 2015 winds down, there are a number of questions on investors minds. Did the Fed postpone raising interest rates because they are concerned about the global economy? Will slowing growth in China have a ripple effect on the rest of the world? Does the recent stock market selloff represent a typical correction (decline) of 10-12%, or does it portend something more sinister? Will the Browns have a winning season? With stock market volatility recently reaching its highest level since the financial crisis, investors are understandably questioning what the outlook is for U.S. stocks in 2015 and beyond. While we dont believe the recent volatility represents the start of a new bear market, caution is still warranted. Over the last couple of months, we have noticed elevated risk levels in the markets that are historically consistent with potential weakness in stock prices. Consequently, our cash (money market) levels have been temporarily higher than normal. That
Worries about the pace of global growth and uncertainty about the Federal Reserves plans to raise interest rates continue to fuel big swings in markets. Our job is not to try to forecast the future, but instead to manage risk. Most of our technical indicators are suggesting a more defensive posture in our investment allocation. Greater caution is warranted until volatility subsides and stock prices regain some degree of momentum. While it is impossible to know for certain, we have enough signs to warrant a move to protect capital until we see a meaningful and sustained move to the upside. We have made slight increases to fixed income (bond) holdings as well as adding exposure to the utilities sector for now. These changes are in addition to previous defensive shifts where we added a managed futures fund and a mutual fund that hedges exposure to further stock market weakness. Hopefully we see the weight of the evidence improve in the coming weeks/months. This is not about predicting what