Investors and money managers alike were happy to say goodbye to 2015 as the S&P 500 closed the year on the downside for the first time since 2008. So far, 2016 has not fared better in its first week with global markets suffering.
There is much uncertainty and bad news out there to justify the negative sentiment:
- Oil continues its slide which many believe is a telling sign of a global slowdown
- There is fear of a slowdown in China and such has seen its stock market halt a few times due to mass selling
- The US Federal Reserve raised interest rates for the first time since June 2006 and has hinted at 3 or 4 more in 2016
- North Korea has an H bomb (ok, probably not)
What seems to be an overwhelming supply of bad news created a volatile 2015. I believe volatility will continue throughout the first quarter of 2016 as well. There is no easy or short term fix to the potential problems that are out there globally. Adherence and belief in long-term investment objectives are paramount in situations where there is so much to be negative about. Remember, we’ve been through 3 major crises since 2000 and all have rewarded investors who stuck to their long-term strategies. That’s not to say portfolios should not be adjusted to absorb some of the volatility, but more so to abhor the sell everything and go to cash theory.
So what do we focus on? Funny, I end every newsletter with the following statement, “As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties”. That statement may never have been more true. We will be keeping a close eye on US economic data for indications of a reversal of growth in the US economy. So far, corporate earnings still seem to be decent in the US. A close eye will be kept on earnings reports, and more significantly, the commentary and guidance coming from those reports. CEO commentary and guidance is often a very good indicator of the short to mid-term prospects of the economy. We will also keep a close eye on the housing market for signs of a slowdown. Housing tends to be a very good indicator of economic conditions. If we see a slow-down that extends for a consecutive 3-month period, it tends to point to recessionary conditions.
With VCM portfolios, we continue to stand by our philosophy of taking a long-term approach with minor tactical moves based on current conditions. We will utilize opportunities to adjust portfolios that will help buffer the potential short-term volatility without abandoning our proven long-term strategies.
As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.
Jason M. Vavra, CPA, PFS
The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of future results.