First Quarter Market Recap And 2016 Outlook

First Quarter Market Recap And 2016 Outlook


The First Quarter Was One For The Record Books (And Not One We’d Like To See Again Soon).

If one’s New Year’s resolution was to avoid the financial markets for the first quarter, we would understand how the S&P 500’s 1% gain looked like a run of the mill, benign three months. However, for those of us who simply swore off cookies, the first quarter was anything but. 2016 began with the worst ever start for U.S. markets, oil fell below $30, and U.S. credit conditions tightened as prognostications for a U.S. recession became louder and louder.  After falling over 10%, U.S. markets rallied to end the quarter modestly in the black, credit conditions improved while U.S. recession fears became more dormant.

We Find It Best To Focus On Big Picture, Given Volatility Likely To Persist.  

With all the financial noise and constant CNBC chatter, it’s hard to make short-term sense of anything, so we tend to focus on the bigger picture. That picture right now is showing a U.S. economy that is on solid footing and chugging along at a decent pace. The U.S. consumer which accounts for ~70% of U.S. GDP remains healthy, evidenced by a supportive job backdrop (consistent job growth, improved labor force participation rates and low unemployment claims), elevated consumer confidence and improving wages. The housing market is in solid shape, auto sales remain brisk, and government spending should be a net contributor to GDP after years of austerity created a drag. Lastly, U.S. manufacturing data has recently begun to show signs of life.

Taken together, we remain steadfast in our view that the odds of a U.S. recession in the next 12 months are low. We also remain cognizant of the fact the bull market turned seven in March and we’re sitting in the 82nd month of the current economic expansion (4th longest on record). Given we’re later in the business cycle than an ideal world would permit, we’ve become a little more defensive in our positioning.

Mistake to Bet Against America

To sum up our view, we don’t see a U.S. or global recession over the next 12 months and we believe valuations are reasonable, especially compared to alternatives. Take cash for example: with cash accounts yielding near zero and recent inflation data over 2%, cash looks to us to be one of the worst asset classes and, in our view, doesn’t make much sense to hold. Instead, we favor diversified portfolios focused on quality stocks and bonds of companies with ample cash flow to distribute consistent income over time.

We also readily admit there are many worries in the world, whether its recession fears, oil price fluctuation, the Federal Reserve, a Chinese economic slowdown, or a highly contentious Presidential election cycle. But, there’s always something to worry markets and most of the time it’s overblown. To paraphrase Warren Buffett: for 240 years, it’s been a terrible mistake to bet against America, and now is no time to start. During the 20th century, the United States endured two world wars; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; the resignation of a disgraced president, yet the Dow Jones industrial average soared from 66 to 11,497, all the while paying ever-increasing dividends. Today, 16 years and another financial crisis later, the Dow Jones has tacked on another approximately 7,000 points.

That’s how we see the world today. Please reach out with any concerns or questions. We’re here to help.


The Investment Committee




Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.


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