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October 2015 Commentary

Quarter Review

Everywhere we looked last quarter flashed signs of a pullback:

  • The 3rd quarter is typically the worst quarter
  • A slowdown in China
  • The Fed may raise interest rates
  • A collapse in oil prices

It’s no wonder that at one point we saw the S&P 500 decline over 10% from its highs for the first time in 3 ½ years. The headlines left many investors jittery about living through another major market pullback like we’ve seen on 3 other occasions since 2000. What I routinely reminded our clients is that, historically, we get a 10% pullback annually. So waiting 3 ½ years, we were long overdue.

Historical data does not alleviate the fears that the headwinds mentioned may push us out of growth mode and into recession. Those fears kept indexes down across the board, with the S&P 500 posting a 7% decline for the quarter and the international index, MSCI ACWI ex-US, down almost 12%.

Forward Expectations

A close eye will be on world economic data heading into the December Fed meeting for any signs of a potential tightening. Our opinion is the Fed should have applied an obligatory quarter point raise earlier in 2015. There were plenty of data points that would have allowed them to do so, and given them some powder in the gun if the US started to slowdown again. Currently, economic data points may not be strong enough to warrant a raise, and will keep the Fed rate at zero heading into an election year. Historically, the Federal Reserve stays away from major policy changes in election years. If that holds true, there is potential that we may not see a raise off zero until 2017. Unlikely, but not out of the question.

China and emerging markets will also be closely watched in the 4th quarter. If indications that the world’s second largest economy may be worse than originally thought, it could increase the signs and fears of a global slowdown, leading to a potential recession.

With a close eye on corporate earnings reports and commentary, we still believe that the likelihood of recessionary conditions in the US is low and we may be setting up for a nice November/December Santa Claus rally in stocks.

Model Allocation

There were no major changes in our models this quarter. We believe the chance remains low of recessionary conditions accelerating in the near to mid-term. We will continue to monitor corporate earnings for cautionary signs or other reasons to change our assumptions. Absent any changes, we will utilize pullbacks to invest cash on hand true to our philosophy of buying low for the long-term.

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



Twitter: @VavCap


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.