TNYNTK_Jan 2016 - Personal Wealth Advisory, LLC

January 2016
Quarterly Market Commentary
Provided by Loring Ward Securities
Left to right: Steven Bell, Thomas Page,
Christopher Miller, Alan Loss and Andrew Barninger.
In his book, Your Money &
Your Brain, financial
commentator Jason Zweig
cites a study of investors who
said they believe there’s a
51% chance that in any given
year the US stock market
might drop by one-third. He
notes that historically, the
actual odds are about 2%.
We encourage clients to
understand how fear impacts
rational decision-making. As
always, we are here to help
you make wise financial
decisions.
.
As of January, 2016
The year ended almost exactly where it started for many asset
classes, in particular the S&P 500, which ended down marginally in
price from 2,058.9 at the end of 2014 to 2,043.9 at the end of 2015.
Similar to 2011, the total return was positive from the dividend
yield on the overall index (rather than from any price gain),
providing a total return of 1.4% last year. While concerns over the
Fed, China, Greece and the price of oil dominated headlines,
investors in the U.S. and abroad will barely notice a difference in
their year-end statements.
In December the Fed took the long-awaited step of raising interest
rates off their near zero level of the last seven years. Markets were
up on the date of the announcement, and relatively tranquil in the
days leading up to the Fed meeting. A few key points for investors to
keep in mind: The Fed hike was highly anticipated, the actual hike
was small (25 bps) and the hike occurred because the Fed viewed
the economy as healthy.
Despite the Fed raising overnight rates, longer-term interest rates
barely budged for the year, with the 10-year U.S. Treasury yield
rising just 10 basis points to end the year at 2.27%. While the
market is pricing in additional hikes in 2016, they are likely to come
slowly and be well telegraphed. As we look back in time, the
December event will likely be notable only for the initial liftoff from
zero rates.
Commodity prices were the other big story of Q4, with oil
continuing to plummet. A mix of decreased demand from countries
like China and increased supply from around the globe sent the
price of oil down more than 45% in 2015, finishing the year well
below $40 a barrel — a mere 18 months away from prices over $100
per barrel. Oil wasn’t alone in its fall; gold, copper and silver all fell
by double digits, and commodities as a whole ended the year down
by 33%.
Currency played a large role in dampening International returns in
2014 and once again in 2015, with the U.S. dollar increasing against
other major currencies by 10.4% on a trade weighted basis. Over the
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© 2015 Personal Wealth Advisory, LLC. All rights reserved.
January 2016
long term we would expect these annual changes to net out to zero. Looking backward we
can observe that the present value of the U.S. dollar compared to other currencies is around
the same value we saw in the late 1970s — meaning a U.S. investor since that time has not
realized any gain or loss from currency changes over the last 40 years.
U.S. Economic Review
Domestic economic data continued to plug along at a healthy, if not exciting, pace. Initial
readings for real GDP for Q3 came in at 2.0%, just below the average we’ve seen in this
recovery since Q3 of 2009.
The unemployment rate dropped marginally to 5.0% as of November, the lowest level since
early 2008. New job creations showed an uptick in October and November to a three-month
average of 218,000 net job creations per month. While lower than the rate we were at a year
ago, it is still above the 150,000 range needed to reduce unemployment. Real wage growth
has been increasing as the year went on; however, it’s still relatively low historically at around
1.8%. Home price gains continued nationally, gaining 5.2% annually over the previous year to
October. Historically, home prices have risen at a rate of roughly 1% above inflation, so the
current growth rate is faster than historical averages in real terms.
Year over year inflation numbers remain just slightly positive at 0.5%, in part due to the
continued drop in oil prices during 2015. If oil stabilizes or increases, inflation could see a
meaningful pick up.
Financial Markets Review
During the fourth quarter of the year, investors fared well, with most equity asset classes
rising in value. In the U.S., Large Cap, Value and Small stocks saw gains, while REITs lead
the pack. International Developed Markets were positive; however, Emerging Markets ended
slightly lower. Short term bond indexes declined marginally.
Bonds
Interest rates rose during the quarter, with the 10-Year Treasury yielding 2.27%, an increase
of 21 basis points from the end of Q3, but up only 10 basis points from where we started the
year.
Domestic Stocks
Domestic stock investors experienced positive returns across the board, with the S&P 500
gaining 7.0%. Long-term returns for the index notched up with the 10-year annualized return
now at 7.3% for the S&P 500. For the quarter:
• U.S. Large Cap stocks rose 7.0%, as measured by the S&P 500 Index
• U.S. Large Value stocks gained 5.6%, as measured by the Russell 1000 Value Index
• U.S. Small Cap stocks tacked on 3.6% for the quarter, as measured by the Russell 2000
Index
• U.S. REITs added 7.5% for the quarter, as measured by the Dow Jones U.S. Select REIT
Index
For the past 12 months, Value and Small companies trailed by 5% and REITs outperformed
by 3% compared to the S&P 500.
Securities offered through Geneos Wealth Management, Inc. (Member FINRA/SIPC). Advisory Services offered through
Personal Wealth Advisory, LLC and Geneos Wealth Management, Inc. a Registered Investment Advisor.
© 2015 Personal Wealth Advisory, LLC. All rights reserved.
January 2016
International Stocks
Global markets saw continued volatility during the quarter. Developed Markets were led by
New Zealand’s return of 18.2% while Canada showed the largest loss, falling 5.1%. Emerging
Markets were buoyed by Indonesia gaining 20.8% and sapped by Greece losing 19%. For the
quarter:
• International Value stocks rose 2.2% in U.S. dollar terms for the quarter, as measured by
the MSCI World Ex. U.S. Value Index (net)
• International Small stocks added 5.8% in U.S. dollar terms, as measured by the MSCI
World Ex. U.S. Small Cap Index (net)
• Emerging Markets declined 1.4% for the quarter, as measured by the MSCI Emerging
Markets Value Index (net)
For the last 12 months, Developed Market indexes fell 0.8%, International Large Value
declined 7.7%, International Small gained 5.5% and Emerging Markets value lost 18.6%.
Emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign
taxes, and different methods of accounting and financial reporting. As a result, they may not be suitable investment options for
everyone. The risks associated with investing in stocks and overweighting small company and value stocks potentially include
increased volatility (up and down movement in the value of your assets) and loss of principal. Bonds are subject to market
and interest rate risk. Bond values will decline as interest rates rise, issuer’s creditworthiness declines, and are subject to
availability and changes in price.
Securities offered through Geneos Wealth Management, Inc. (Member FINRA/SIPC). Advisory Services offered through
Personal Wealth Advisory, LLC and Geneos Wealth Management, Inc. a Registered Investment Advisor.
© 2015 Personal Wealth Advisory, LLC. All rights reserved.