Commentary on the Market: Year-End Quarter Update 2015

Ruben’s Commentary on the Market

Year-End Quarter Update 2015

2015 was a difficult year for most investors, but certainly not the end of the world. There were many moving parts beginning with weather related issues to start the New Year. This has happened for the past several years. This was followed by the probability that Greece would exit the Eurozone. In and of itself, Greece was not a major issue but there was an overriding fear that this would create a domino effect among other weak Eurozone countries. As we approached mid-year a rapidly slowing Chinese economy triggered a significant drop in the Chinese stock markets forcing the Chinese government to intervene and to provide massive liquidity to those markets. This eventually led to a serious devaluation of the Chinese currency (Yuan). These actions helped trigger a big drop in the U.S. stock markets. As if that was not enough, investors, aided by the media, were faced with other things to fill their minds with fear. The specter of the Federal Reserve raising rates caused more investor uneasiness. As we turned the final corner for the year, commodity prices melted down because of slowing demand from countries around the world that were seeing their own economies slowing significantly.

The big drivers for underperforming stocks in 2015 were quite simply poor corporate earnings caused by lackluster international demand and the strengthening of the dollar against most world currencies. This has made our products more expensive to our trading partners. Additionally, falling oil prices hurt the energy, materials and industrial sectors.

Despite all the negativity in the world, which includes global sectarian violence and terrorism, there actually were some positives that we saw coming out of 2015. The U.S. economy grew modestly and unemployment declined significantly. Over two million jobs were created in 2015. This allows these new working consumers to spend, which bodes well for the markets moving forward. Simply put, the more people that are working, the more money will be spent on goods and services. The housing and banking sectors improved. The Federal Reserve acted in December to raise interest rates. Albeit only a modest rise in interest rates, the banking sector stands to improve by this action and should become a bell weather for an improving economy. I am not ready to commit to an explosive stock market in 2016, but I do feel that the consumer will boost corporate earnings, which ultimately will drive the markets upward. Stocks will again outperform bonds, with rising rates impacting the value of bonds. If you must be in bonds, keep to a short maturity or duration.

The fundamentals of the U.S. economy continue to improve. I feel that the market pull back that we are currently experiencing is a retest of the progress that we have made to date. This process is called backing and filling, which reaffirms the fundamentals and prepares the markets to further move ahead with more confidence. The process may be slow and will come with some volatility, but we are definitely improving.