Spring is coming and it’s time for spring break, Easter and the annual raising of hope for the Cubs and White Sox. During spring, a feeling of newness and opportunity prevails and with opportunity comes risk, so let’s see if the markets are showing any semblance of opportunity and assess the current environment to understand where we are so we can manage risk appropriately. We’ll take a look at last quarter, our current state and where the risks are in the markets:
Summary, Last Qtr: The start of the year was rough for the stock market, which saw the S&P 500 drop for another “correction”. Prior to this correction, we had a similar correction in Q3 and Q4 of last year. Two c0rrections in that short of a time frame is unusual, and we are only now getting close to even as the rebound tries to muster ahead. Oil prices are one of the areas blamed for this volatility, as cheaper oil prices are generally good for the broader economy, but it can be bad for the stock market because stocks of oil companies will suffer. The battle of oil production has heated up, pushing the price of oil down. Elsewhere, the Federal Reserve is watched closely for their interest rate moves in addition to their comments about the economy. By changing interest rates, the Federal Reserve has the ability to speed up or slow down economic cycles, and the current state of the markets seems to place larger-than-normal weight in the Federal Reserve’s influence. The Fed is in a mode of potentially slowing economic activity, if they see the U.S. growing too quickly. Meanwhile, Japan has moved to negative interest rates while Europe has decreased interest rates in attempt to ignite more economic activity. All of this creates a broad economic picture of disjointed economies.
Our Commentary: We expect the Federal Reserve to keep a close watch on U.S. economic expansion, although some of the raise in interest rates is to simply have the ability to lower rates in the future. We think the Fed will raise rates in 2016 at least once, potentially a few times, if the data dictates that. The trick here is that the Fed is not giving much guidance; they have taken the position that their decisions are dependent on incoming data. Given this stance, an oil price war, different economic policies employed in other major economies across the world and a presidential election year makes for uncertainty. That uncertainty creates volatility. We favor the U.S. markets over others at this point, with a theme of volatility as our expectation for the near term, making a sound financial plan all the more necessary.
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.
Here’s to Spring!
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Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
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