Special Market Update: January 2016

Market Update: January 21, 2016

As I write this update with 30 minutes to go before the financial markets close here in the United States, I have watched the Dow Jones Industrial Average drop by 500 plus points earlier in the day and is now down only 120 points. The NASDAQ was down 150 and is currently up 30 points led in part by the biotech sector jumping 4%. The markets bounced off of their lows as oil bounced off of its low for the day. Collectively, we have experienced the worst start to a new year in market history.

Today’s market moves are showing opportunities beginning to surface for investors with stock buying happening as oil came off of the lows for the day. We experienced significant market drops in 2000, 2001, 2002, 2008, and the “Flash Crash” of 2010 with lesser but significant drops in 2011 and 2015. Even the Ebola Crisis in West Africa caused a correction in our markets in 2014. This is what markets do. They are linked to human behavior. In each instance the market reestablishes a base and rebounds to higher levels. If there is a short term positive to this market roller coaster that we are experiencing, it is that we are getting an expected correction over with.

Will this market drop continue or are we seeing signs that we may be hitting a bottom? I cannot give you a day and time that we will see a bottom. In fact, no expert can predict the absolute bottom. Regardless, I do feel that sometime very soon the sentiment will swing to the positive side. The U.S. economy is on solid footing with unemployment down to 5%. Unemployment was almost double that figure seven years ago, and we added two million jobs last year alone. China’s economic slowdown has been blamed for much of our market turmoil. However, their economy is still growing at a rate of 6.9% down from 11%. This is still one of the fastest growing economies in the world. I don’t want to understate the impact that China has had on our markets, but the dropping price of oil is a more prominent factor in our markets pulling back. We have an oversupply of oil worldwide. This has come from new drilling techniques that produce even more oil combined with lesser demand for oil because of conservation efforts. Oil pricing will settle out soon with oil prices rising somewhat, and the impact of sustained lower oil pricing will benefit high energy using businesses such as utilities and airlines.

Keep your perspective. We have seen this type of market action before and this too will correct itself. We will continue to evaluate your investment plan, with your objectives in mind, and look for opportunities.

Sincerely,
Ruben E. Guerra
President