Happy New Year to you and your family! This is the time of year for celebrating time with loved ones along with reflecting and setting goals for the coming year. On that topic, it’s also a time of year when we at The Retirement Network review the year and the most recent quarter to assess the current environment to understand where are now so we can manage risk appropriately. So let’s take a look at last quarter, our current state and where the risks live in the markets:
Summary, Last Qtr: Stock markets rebounded after the “correction” in Q3 and the beginning of Q4 2015. A market “correction” is defined as a reverse movement, typically negative, of at least 10%. These corrections are usually temporary price declines that interrupt an uptrend. The Federal Reserve is expected to raise rates in late 2015 and possibly raise rates in 2016 more, in essence keeping the bond markets treading water. The ECB is behind the U.S. in terms of their quantitative easing program but they are showing some progress in stimulating economies there amid their immigration problem. Meanwhile, oil prices have fallen, which is typically good for the economy, however, concerns over permanent oil production locations has fueled political worry.
Our Commentary: We expect the Federal Reserve to raise rates a quarter of a percent before the end of 2015, but that is dependent on incoming data, a Janet Yellen has made clear. This raise if not so much about cooling an expanding economy as it is about having the ability to lower rates if the economy were to take another dip, which eventually will happen. That may cause temporary shocks in the markets even though it is widely expected. This, coupled with terrorism and a presidential election year, all add up to volatility. Volatility typically leads to poor investor behavior, which manifests in panic, fear and selling. This type of environment exemplifies the importance of a sound investment plan.
Our Investment Committee periodically monitors the markets and will continue to provide comments at the beginning of each quarter. Each portfolio is different and we recommend getting individual help, which we are happy to provide.
Happy new year!