Highlights of this Month’s Update:
- How many decisions do you have to make each day? The total may surprise you!
- Dow and S&P 500 eke out small gains in April, keeping 2016 returns slightly positive.
- Oil continues to rise in April.
- Interest rates remain low along with fixed rate mortages.
- Our indicators remain positive for stocks overall moving ahead at this time.
- Corporate earnings slow, but still beat lower expectations in general.
- Start taking advantage of our MyWealth system today for your long term planning.
- Fed keeps rates steady for now.
READ ON FOR FURTHER DETAILS…………………………………..
Decisions, Decisions, Decisions:
Have you ever wondered how many decisions you make per day? Researchers estimate that a person makes approximately 35,000 choices each day – both big and small. Life is full of choices, and while some don’t make a huge difference, many can greatly alter the course of your future as well as that of others. The ability to choose is a great power given by our Creator. Each choice has consequences…and sometimes rewards. What you do today will affect your tomorrow!
Both the Dow Jones Industrial Average and the Standard & Poor’s 500 stock indices were able to eke out small gains in April, following strong performances in March. The Dow was up just .50% in April, while the S&P 500 managed to gain only .27%. For 2016, as of April 30th, the Dow is 2% higher and the S&P 500 has risen 1.05% since the beginning of the year. (MarketWatch)
Interest rates have continued to remain low so far in 2016, with the yield for the 10 year U.S. Treasury still under 2%, closing out April at 1.83% compared with 2.27% at the start of the year. (U.S. Treasury)
The current rate for a 30 year fixed mortgage is still at 3.6% on average, and the 15 year rate at 2.73% (Bankrate.com)
Oil prices have continued to improve in 2016, finishing last month at $45.99 per barrel compared to $37.07 at the end of 2015 for West Texas Intermediate Crude. (CNBC)
The indicators we follow continue to point to a strong equity market for the second half of the year. Volatility has picked up in the last two weeks, and it may continue for the next month or two. However, we anticipate a stronger pickup again for stock prices in early fall, as long as interest rates can remain stable and potentially decline in the next few months ahead. All else equal, we will retain our current equity allocations for each risk level and allocate excess cash available to equities in the weeks ahead if markets continue to dip from present levels.
The majority of fixed income holdings for client accounts remain in relatively low duration/maturity funds, and we do not intend to change this stance anytime in the near term. However, we may be forced to lengthen durations/maturities if bond yields end up moving higher over the next two months. We are instead expecting yields to decline slightly from present levels, which will leave our 2016 road map unchanged at this time. We will keep you updated.
Running in Place:
Following a rough start to 2016, shares bottomed in February and posted a respectable rally heading into spring, to provide slight gains so far this year.
A review of Figure 1 illustrates the two 10%+ declines the S&P 500 has experienced over the last year. While the steep downward descent of both selloffs may have unnerved some, stock market corrections of at least 10% are not uncommon during economic expansions.
Pullbacks of 10% or more have occurred 13 times over the last 21 years, according to Charles Schwab, with an average decline of nearly 16%. Despite these setbacks, stocks rose in most years, with positive returns in three-fourths of years and an average gain of approximately 8%.
It remains to be seen whether market volatility is behind us, but the key to long-term success is having and adhering to a long term plan – a roadmap – that explicitly defines your goals and lays out investment parameters. If your situation has changed, let’s meet. We may need to adjust your plan. This is what our MyWealth system is meant to do: Provide you with a current summary of your personal financial situation each day and allows us to assist you in developing, monitoring, and updating your long term planning.
For investors, there are some silver linings in recent earnings reports for the first quarter, 2016, even though they appear weaker than in the same quarter last year.
The first – most companies are exceeding a very low hurdle. According to Thomson Reuters, of those firms that have already reported through the end of April, 75% have posted profits ahead of analyst forecasts.
Second, while the stronger dollar remains a headwind, some of the resistance has faded for the large multinationals (Wall Street Journal). A rise in the dollar means that sales made in other countries must be translated back into a stronger dollar. But the recent stability in the dollar has been a relative plus.
Third, analysts continue to cautiously predict that the first quarter will be the trough for profits, and expectations of a return to earnings growth by the third quarter, 2016, have been a tailwind for stocks – see Figure 2.
Conversely, the slowdown in earnings growth that asserted itself in the first quarter of 2015 and subsequent earnings recession have played a role in lackluster market returns over the last year. The markets are always looking ahead.
Fading Recession Fears:
The economy is not firing on all cylinders, and preliminary data from the U.S. Bureau of Economic Analysis showed that first quarter Gross Domestic Product (GDP) expanded at an annual pace of just 0.5%. Nonetheless, fears at the beginning of the year the economy was set to slip into a recession have faded.
Job growth has been moderate and weekly jobless claims are at historically low levels (Dept. of Labor), suggesting there may be anomalies in the process used by economists. Whether that is the case or not, most leading indicators suggest modest growth remains on tap.
Another support for stock prices – the Federal Reserve is in no hurry to pull the rate hike trigger. The Fed did announce its first rate increase in almost a decade last December, but the statement that followed the latest meeting in April did little to signal policymakers are intent on hiking when they gather in June. A reluctance to increase interest rates, even gradually, has soothed short-term investor anxieties.
It’s no coincidence the February 11 low in the S&P 500 coincided with the 2016 low in oil prices (St. Louis Federal Reserve). While the correlation between oil and stocks hasn’t been as tight in April (St. Louis Federal Reserve), rising oil has supported bullish sentiment. For starters, higher oil prices may lessen the impact of falling earnings in the energy sector. It has also reduced financial pressure in the high-yield debt market.
We’ve experienced volatility over the last year, and returns on the major market indexes have been subdued. However, long-term investors have historically been rewarded by looking past bumps in the road. Those who adhere to a long term plan and not chase returns or react to every twist and turn in the market are usually rewarded over the long haul.
We appreciate the privilege to serve each and every one of you, and look forward to working together in the years to come. Please call us if you have any questions, or if we can be of further service in any way.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice.
Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.
U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Past performance is not a guarantee of future performance. Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.