As the focus on November’s presidential election weighed on investors, equity markets were down throughout the first month of the fourth quarter. Following Donald Trump’s surprising victory, U.S. markets pivoted and the quarter ended on a much higher note, with very strong returns from small and mid-cap stocks. In comparison, international stocks experienced a much rockier path, ending the quarter marginally lower. Overall economic data was positive, and investor sentiment greatly improved once the uncertainty of the election faded. Interest rates changed dramatically during this time, causing dropped prices and negative returns in bonds.
As the third quarter began, equity markets continued to rally from the lows that followed the Brexit vote. By mid-July, volatility softened and the S&P 500 Index went 43 consecutive days without moving by more than 1.0% in either direction (for reference, the longest stretch reported in recent history was over 60 days in 2014). Markets experienced increasing choppiness throughout the remainder of the quarter, however...
Equity markets continued to exhibit heightened volatility in the second quarter of 2016, especially during June. A very weak May jobs report created market turmoil in early June, followed by substantial global market movements leading up to, and immediately after, the June 23 "Brexit" referendum vote.
On Thursday June 23, Britain held a referendum vote to determine if it should continue its membership (a vote to “Remain”) in the European Union (EU) or vote to “Leave”, a term referred to as “Brexit” (a combination of “Britain” and “Exit”). The results were very close, with 51.9% voting to Leave. The results of the vote sent shockwaves through worldwide markets on Friday. Stocks and currencies around the globe are experiencing heightened volatility due to the uncertainty of what this historic vote means going forward.
U.S. equities fell quickly and deeply into the red to start 2016, producing the worst opening 10-days of the year in history. International equities also had a poor start to the year as another plunge in oil prices, continued concerns over slowing global growth, and lingering effects of the Fed’s interest rate increase in December all contributed to the selloff in risk assets.
Will the US ever raise rates in 2015? We started last quarter with this same title and stated, “Another quarter, another wait for the Federal Reserve to reveal its rate policy plan for the future while other central banks have eased monetary policy.” As long as the FOMC is committed to a data dependent view, we do not expect a rate hike in 2015. By waiting for our peer economies to stabilize and for US inflation to signal a need for higher rates, the Fed should be on hold until 2016. The Fed will wait a long time if they think it can pick the bottom in the global economic cycle and raise rates when global sentiment agrees that the US should lift rate from the zero bound.
We know that tax planning is an integral part of our clients’ financial planning process. To provide a well-rounded approach to financial planning, we again offer the MCF Advisors Tax Planning guide, which contains tax strategies that may be useful to our clients. The Guide outlines tax legislation changes as well as reviews various concepts and tactics that may help to reduce your personal or business tax burdens. Reach out to us to schedule a time to discuss any topics that may be applicable to you and your family.
Sticking to your investment policy through market volatility is the most difficult part of investing. The emotional roller coaster for investors is real and if the recent headlines have you feeling anxious, you’re not alone. We’re here to help you navigate through times like these. Investing is hard, but in the long-run, we know that staying steadfast through times like these will provide for a better outcome for you. Take a minute to check out the link below to see the impact on panic selling vs. remaining steady in the face of adversity.
Another quarter, another wait for the Federal Reserve to reveal its rate policy plan for the future while other central banks have eased monetary policy. Another quarter, another wait for Europeans to settle their Greek misfortune. Another quarter and we wonder about the correction in local Chinese markets, which seems overdue and very necessary. We still forecast very modest gains in the U.S. and better returns abroad as these factors are resolved, positively or negatively. We are not cheerleaders for a new bull or the old bull, and this ambling market resembles more bison than bull.
Investors debate economic growth and wait for the Federal Reserve to reveal its rate policy plan for the future while other central banks have eased monetary policy. For the near term, this is likely to produce very modest gains in the US and better returns abroad until markets can determine if the US can grow absent any inflation. If so, then US markets will produce acceptable returns later in the year.
Markets rallied to finish the year. The US market rally occurred after another first for the market with more than nine lives: the Dow lost and regained more than 6% in one month (October), which was a first ever for the index. The global rally recognized the improvement in US earnings by the end of the third earnings season and the increased likelihood of additional stimulus in Europe and Asia. The rally also chose to ignore the precipitous decline in energy and commodity industry earnings that started in the final weeks of the fourth quarter, merrily choosing holiday mirth over financial worth.
Markets and allocations have been kind to us in the third quarter but it has given investors pause to consider their view of the market as half full, half empty, and at times, half baked. The quarter moved from a less volatile state to a more volatile one in the closing weeks with the average range on the S&P 500 Index rising from 11 to 18 points.
The MCF Tax Guide details recent tax legislation changes and suggests ways to reduce both business and personal tax liabilities. As you review this guide please note the strategies and tax law provisions that may apply to you and your family and please reach out to schedule a time to further review your financial plan with us.
The second quarter earned the distinction as one of the few quarters in over a decade that gold, stocks, and bonds moved higher. A speculation would suggest that at least one of those is out of place and perhaps all deserve a rest. MCF believes that bonds have the most to worry over as the pressure to buy ‘em higher has to abate even in times of equity market distress. Inflation will return or has returned depending on your view of government data. The S&P 500 Index started the quarter at 1860 and finished at 1973, returning over 4.5%. The Dow finished at 16,826, up over 2.0%. The Nasdaq Composite shone brightly with a quarterly return of 5.0%, ending at 4408.
The markets endured a volatile first quarter as the S&P 500 Index hit a record high in the beginning of March, but quickly lost traction and gave back some of the earlier gains to end the quarter up 1.8%. In the U.S., the polar vortex and harsh winter weather skewed economic data but many analysts expect a rebound in Q2 and positive growth for the rest of 2014. Internationally, economic data continues to be mixed and geopolitical risk increased as Russia, host of this year’s winter Olympics, flooded headlines with the annexation of Crimea from Ukraine.
Looking forward to 2014 and beyond, we maintain our view that US economic growth will be positive. While growth is still relatively modest today, we will likely continue at our current pace of around 2% and eventually rise to 4% by the end of 2016. While much has been made of the pending threat of inflation, it is presently a nonfactor in our opinion. However, we do expect it to creep back up to its historical average of 2-3% by the end of 2016.
Capital Market Review, November 2013
The November jobs report was highly anticipated, as it was the first reporting period post federal government shutdown, and the actual number of jobs added for the month came in higher than expected. However, as the economy moves from potential tapering to actual tapering, a clearer picture of the economy will emerge.
MCF Special Commentary: Debt Ceiling/Default Scenarios Explained
There are a number of potential scenarios for the present debt ceiling and default impasse that have investors concerned. Given that the number of outcomes doubles with the number of economists asked, we thought a short note on the impact of this unlikely event might provide some clarity insight to readers.
Both the equity and bond markets posted solid returns for the month, closing the quarter with positive results. The ongoing debt ceiling debate, or lack thereof, and government shutdown has only caused mild caution for investors thus far.
All eyes are on the September Fed meeting and the size of the assumed taper. Bond markets have also been sensitive to the next nominee for Fed chairman. The two major camps are divided between Larry Summers, who appears to favor ending QE sooner rather than later, and Janet Yellen, the current vice chairperson of the Fed, who is perceived to be even more dovish than Ben Bernanke and likely to continue QE.
July brought a bounce back in the U.S. equity markets as a number of companies reported earnings during the month, with the S&P 500 gaining 5.1% including dividends. These gains were unmatched in the bond market however, as the yield on the 10yr Note drifted up 8 basis points to close at 2.60%.
Investors withdrew $36 billion from bonds over the last two weeks of the month. This heavy outflow showcases the number one concern of bond investors - the timing and ramifications of the Federal Reserve's presumed upcoming decision to ease bond purchases. The uncertainty has moved investors to a "wait and see" approach. Click here to continue reading our June Capital Market Review.
The S&P 500 reached its all-time closing high on May 21st, but closed the month slightly off those highs. In response to concerns that the Federal Reserve may end their quantitative easing earlier than anticipated, the bond market had a difficult month as the interest rate on the 10 year U.S. Treasury Note increased 55 basis points, driving prices lower as a result. Click here to continue reading this month's Capital Market Review.
Financial Insights, April 2013
Financial markets continue to set highs on weakening economic data, currency destruction, devaluation by our trade partners, and very modest corporate growth in the United States. Why the new equity highs?
Capital Market Review, January 2013
$20 billion of inflows into equities in January! Astute investors know that the average retail investor typically goes “all in” close to the end of a rally. Is the “dumb money” finally chasing equities? Click to read our take on fund flows and its impact on the markets.
Forward Thinking, the Next Five Years, January 2013
The economic roller coaster of the last five years has rolled from the heights of 2007 to the worst recession in 60 years and now to our current economic position of frustratingly slow growth. The future landscape is fraught with many potential risks such as a Euro breakup, a hard landing in China, and a US debt crisis to name just a few. While these risks are a concern, they present profitable investment opportunities for those who plan and anticipate well.
Click here to watch a recording of our recent webinar on January 31, 2013 where we offered our opinions and investment recommendations for the next five years. The video is approximately 30 minutes in length.
Capital Market Review, December 2012
We closed out 2012 on a positive note with the Fiscal Cliff resolution, stocks gaining 16% for the year, and bonds up 4%. But that was the past and the markets are concerned about the future. Looking forward, we continue to see our economy slowly expand as consumers continue the deleveraging process (or reducing their debt). This means more saving, less spending, and slower economic growth. While this causes short-term economic slowness (NOT a recession though), it is great for our economy in the long run as it gives the average consumer a sounder economic footing. To continue reading the rest of article, click here.
Financial Insights, October 2012
Given the cloud of uncertainty surrounding the economy, it is no wonder investors are paralyzed. This quarter's Financial Insights attempts to lift that cloud and provide sound, fact-based guidance. Check out this newsletter for a discussion on economy, stock, and bond markets. To continue reading the rest of article, click here.
A Dose of Economic Reality, July 2012
Click here to download a copy of the presentation slides from our webinar on July 17th, "A Dose of Economic Reality."
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