DECEMBER 30, 2015

2015 Round Up

2015…..OIL, THE FED and CHINA

Through all of these events the US market exhibited resilience. The US corporations would have performed better without these headwinds.

So today we sit with a slightly positive principal return on the S&P500, the inclusion of dividends brings that return up.
The Nasdaq was the clear US winner with a 8% return through last night.
The Dow is still slightly under flat, but with the dividends looks a bit better.
We have 2 more trading sessions (of very light volumes) to round out 2015. The market is flat so far with Oil heading downward.

The THREE major THEMES that dominated the markets this year were…..

THE FED……CHINA and of course OIL

1. The Fed speak throughout the 1st of half of 2015 led the markets up and down then sideways.
2. China lowered expectations and unknown margin amounts really kicked in as we entered the 3rd quarter and the US earnings season.
3. The culmination of all the aforementioned uncertainty coupled with the falling oil prices and the adjusted earnings guidance perpetuated through August.
4. September, October and November showed radical swings as the Fed prepared for their rate hike and “NOPEC” became the new word of the 4th quarter.
5. December markets have been dominated by Oil.

This could translate to additional upside as we turn the corner into 2016.

Other things that did not work in 2015.

• Commodities remained out of favor and falling, contributing to a global market slide in both developed and emerging markets.
• Hedge Funds continued to fail investors, counting on a return to higher Oil prices and other global interests including currencies.
• Most hedging strategies did not work out because the US remained strong throughout 2015.

Oil and the Fed Hike

We have seen Oil (West Texas Crude) slump from over $60 a barrel in May of 2015 to below $37 in December, an additional 38% slide in only 7 months. We are approaching the lows of 2004 and this may be a real possibility. This will contribute to continued High Yield fallout as we enter 2016 and look for bankruptcies in the Exploration and Production segment. But buying, for the long term in quality names will pay off in the years to come.

The Fed hike has yet to trickle into mainstream economy and consumers. So far no major bank has announced an across the board increase for deposit accounts. Some have done this for selected High Net Worth clients. The prime rate and credit card rates are being adjusted and other lending rates as well. Mortgages have not been too affected by the change due the longer termed nature and how the yield curve has responded. Mortgage rates remain historically low.

Please call us to answer any question you may have.

NOVEMBER 23, 2015

November, like the rest of 2015, has been a reaction to the recent “Fed Speak” and Geo-Political events.  

On November 6th, the Fed’s targeted mandate of a 5% unemployment rate was reached.   This caused a flurry of re-adjustments to portfolios, as the consensus of a December rate hike increased in probability.   The expectations of the markets response to a rate hike started to play out in the markets last week.  

The anticipated reactions are that both the stock and bond markets will experience a pull back. The bond market should remain “lower prices for longer”, as this is the beginning of a long-term cycle change.  Opportunities will present themselves in less conventional bond sub-asset classes.  

The stock market’s pull back will be shorter lived, as this market trades according to earnings and growth expectations. Last week was a welcomed rebound for the US markets after a dismal week of sector rotation and Fed anticipation.  

The markets are preparing the first fed rate move in over 7 years and the first time we have moved from a 0% Fed Funds rate.  

In light of the recent events in Paris we will be watching the price of Oil.             

Oil

Oil has mostly been stuck in a trading range, until these recent events. We have seen a few days where Oil has dipped into the low $40s. We expect this to remain volatile, as subsequent events to the Paris attacks unfold.   Coordinated efforts to target ISIS together by France, US and other G20 countries may push oil prices up ultimately.  

We will be monitoring the price of Oil as follow-up to these events occur.  

Bank Stocks

Regional Bank stocks along with other financials seem to be moving upwards.  This is another indication that the December rate hike is likely and the increased sector allocation is counting on higher rates to increase revenues and spread over other G20 countries.  

Volatility

The current volatility in the market gives us the opportunity to position our portfolios for year end, taxes, a Fed move, and the rising interest rate environment.

October 8, 2015

Since Janet Yellen’s last announcement, the markets have been responding mostly to US political rhetoric and other geopolitical issues. This past week we saw a surge in Oil Prices with a 5% leap on Tuesday alone. We believe that some volatility will remain in the US market as Earnings Season begins today, bringing opportunities in some industry specific areas that are now undervalued.

Oil

The recent surge in the price of Oil was triggered by multiple factors:

  • Data from the American Petroleum Institute showing a 1.2 Million barrel decrease in crude supply last week
  • Increasing demand according to Energy Information Administration
  • OPEC comments regarding cuts to oil production

However, oil remains below its long term average price per barrel and investment opportunities in some oil stocks still exist.

We may have seen oil stock prices bottom last quarter, since we had 1 full year of lower overall oil prices.

Healthcare / Biotechs

An interesting disparity has presented itself in this sector. Although Hillary Clinton’s bashing of the biotechs and their high drug prices has brought down the stock prices of many in the past couple of weeks, we have seen a recent rebound thanks to prescription providers like Express Scripts picking up multiple providers for these cutting edge drugs.

The sector’s adjustment downward has produced some opportunities in the Large Pharma arena. Some stocks are selling at about 15 times next year’s earnings, and attractive compared to historical valutations.

Longer Term US Stock Outlook

The recovering Euro versus the dollar should add some more pep to US corporate earnings in the next couple of quarters. After the recent market adjustment, stated dividends and current EPS projections could easily allow for high single digit to low double digit return for some companies over the next 12 months. Picking these stocks will remain a focus for us, as the broad markets may not fare as well.

Many long term charts still indicate that this retracement does not detract from a viable longer term secular U.S. bull market at this point.

Fed Outlook

After Fed chair Yellen’s non-move away from zero in September, the consensus for a fed rate move has been pushed out to 2016. Many would prefer she act more swiftly to allow for some dry powder, should the outlook deteriorate. This message from the Fed would indicate that the US economy is no longer in “crisis” mode, or in need of a 0% Fed Funds rate.

We saw some rate records set in the US Treasury markets last week. The 3 month T-Bill was issued with 0% interest rate for the first time ever.

15 year fixed Mortgage rates fell below 4% which caused mortgage issuance to surge.

Please feel free to contact any of us with your concerns or thoughts.……