December 2016 Financial Markets Summary

2016 has been the year of surprises. Most conventional wisdom and expectations have been proven wrong. It was common knowledge that the Britain vote to leave the European Union would fail. Common knowledge was wrong. All major investment firms suggested loading up on European stocks and reducing domestic exposure. They were proven wrong. The same firms recommended investing in large U.S. companies over small companies. They were wrong. The polls and broadcast media told us the U.S. presidential election options were two: whether Clinton would win by a small amount or by a landslide. The polls and media were wrong. Economists, investment experts, and the media agreed that a Trump victory would mean a market crash. They were wrong. At the beginning of the year, most expectations were for the Fed to increase interest rates at least twice, perhaps three times. Expectations were wrong. The end of the world as we know it has not happened, yet.

Next year will bring another batch of common knowledge, broadcast media predictions, and sure things from economic and investment gurus. If history is any guide, most will be wrong, again. Through it all, PDS will try to keep client portfolios on track, help clients and their CPAs plan tax strategies, run retirement cash flow projections, help retirees work through the jungle of health care options, encourage clients and their attorneys to have important documents completed and signed, and any number of other services for which our clients have come to rely on us. Predictions, common knowledge, and experts come and go. But our commitment to service remains.

Expectations of higher interest rates have hurt values of long-maturity bonds, especially Treasuries, which lost almost 13% in the last three months. PDS has favored short-to-intermediate bonds, but even some of these have been pressured a bit. Common knowledge, and our hope, is that the expected December Fed rate increase of 0.25% is already factored into bond values. Yesterday’s OPEC agreement meant a big gain in oil prices, which by the way, experts got wrong again. Prices have risen 12% in less than one day, surpassing the $50 point again. Higher oil and gas prices could add to inflationary pressure on the economy.

A diversified investment allocation remains a solid strategy for investors. We recognize that domestic and global events will happen and that some changes to portfolios will be needed. But chasing performance is a losing game. There is risk in everything. Be sure your portfolio’s allocation matches your goals, your cash flow needs, and gives you some measure of assurance. And remember that Today’s headlines and tomorrow’s reality are seldom the same.

Asset Index Category Category Category Category 10-Year
3 Months 2016 YTD 2015 Average
S&P 500 Index – Large Companies 1.3% 7.5% -0.7% 4.4%
S&P 400 Index – Mid-Size Companies 4.0% 16.3% -3.7% 7.2%
Russell 2000 Index – Small Companies 6.6% 16.4% -5.7% 5.3%
MSCI ACWI – Global (U.S. & Intl. Stocks) -0.8% 3.5% -4.3% 1.4%
MSCI EAFE Index – Developed Intl. -2.8% -2.3% -3.3% 0.7%
MSCI EM Index – Emerging Markets -3.1% 10.9% -14.9% 2.3%
Short-Term Corporate Bonds -0.4% 1.9% 0.2% 2.5%
Multi-Sector Bonds -3.1% 2.5% -2.1% 4.2%
International Government Bonds -4.8% 8.7% -3.9% 3.4%
Bloomberg Commodity Index 4.0% 9.7% -24.6% -6.2%
Dow Jones U.S. Real Estate -8.3% 3.2% 2.1% 3.3%


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved.