The stock market is a device for transferring money from the impatient to the patient.
-Warren Buffet
2016 First Quarter Commentary
After starting off the year with its worst 10 day start in history, global and domestic investment markets recovered almost all their losses to end the first quarter either slightly up or slightly down. As a result, most diversified portfolios ended up roughly where they started the year. The US economy continued to shrug off fears of a global economic downturn on the back of consistent job gains, wage growth, and resilient consumer spending. Despite entering the year under a cloud of worry, American businesses and consumers appear to overcoming many of the fears gripping financial markets and overseas economies in recent months.
As we have said in past commentaries, investors should keep their eyes on employment and wage growth. Why? Because consumers make up about two thirds of Gross Domestic Production (GDP), the most common used measure of economic growth and health. The steady pace of job growth and relatively moderate wage growth suggest the labor market still has room to bring in more workers – a good sign. Adding to the good news, US manufacturing expanded for the first time since last summer and showed increases in orders, exports, and production.
The Fed indicated they plan to remain patient with future rate increases, which also aided in stabilizing markets. Rates are not anticipated to increase at the April meeting, and it may in fact be June before we see another chance of a rate increase.
Commodity markets, which have dragged markets down for two years, finally appear to have stabilized with oil leading the way. We continue to watch these markets closely for signs of an upturn, which would forecast a return of global expansion in markets such as China and the developing world.
International stock markets also experienced a recovery after the first quarter swoon, as a weaker dollar contributed to an improvement in the outlook for Europe and the Far East. Developed economies abroad continue to face headwinds, but offer more value than domestic markets do presently. After lagging behind the US for the past two years, we may begin to see international stocks return to favor.
In terms of investor behavior, first quarter market activity reinforced what we’ve been saying all along: In the short term, market fluctuations are a function of certainty or uncertainty. When uncertainty reigns, markets respond with greater fluctuation. When certainty begins to return, markets respond accordingly. Hopefully, guided investors ignored the noise and kept about their business. Speaking of noise, the financial media continues to produce its primary export – useless sensationalism – at a rapid pace. Note the two quotes below:
“U.S. stocks post worst 10-day start in history.” CBS Marketwatch, 1/15/16
“Dow posts biggest quarterly comeback since 1933.” CNBC, 4/1/16
Patient investors would be wise to resist reacting to such nonsense. True, market returns have been lukewarm for the past two years. Since 2014, diversified investors have essentially treaded water. Sometimes, this results in investors feeling an irrepressible desire “do something” differently. Instead, investors should do two simple things:
First, review your asset allocation and your appetite for risk. Two, make sure they are both aligned with your long term plan. The bottom line is – we’ve seen this market pattern before, and it has historically ended with returns eventually reverting to their normal long terms averages. See you next month.
-Your First Coast Wealth Advisors Team
Securities and Advisory Services offered through Geneos Wealth Management. Member FINRA/SIPC.
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First Coast Wealth Advisors • 400 North Ponce de Leon Boulevard • St. Augustine, FL 32084
Securities and Advisory Services offered through Geneos Wealth Management. Member FINRA/SIPC.