November 2015 Financial Markets Summary
Today’s headlines and tomorrow’s reality are seldom the same. We have included this thought in our monthly commentary for a long time. The fact is that it’s true, and we certainly have seen this come to pass in the last two months. It was just a few weeks ago that we were being told by broadcast media that China’s economy was blowing up, the U.S. was going to default on its bond obligations, and much of the world was headed for a recession. Domestic and European stock markets were in the midst of a 12% correction, and emerging markets were down as much as 25%. Headlines talked about a “bloodbath” for investors. So much for the headlines. What about the reality? There was no bloodbath. A typical balanced portfolio was down about 6-7%. China has not gone away. Their economy is growing at about 7% per year, a number that the U.S. has seen only once (in 1984) since 1959. The so-called “chaos” in Congress has agreed on a solution to the budget impasse. And a world-wide recession, while always a possibility, seems pretty remote at this time.
In the last month, stock markets have staged one of the biggest turnarounds in recent years. We are now heading into what has historically been the best period for stocks (November-March). Domestic stocks, while not at extreme valuations, are no longer at bargain prices. A few seem to be very over-bought, particularly in the technology sector. By contrast the pre-2016 political posturing has caused a selloff in pharmaceuticals, and they are perhaps more attractive. Like any year, there are sectors that outperform others.
Have we ever had such hand wringing over a potential 0.25% increase in short-term interest rates? Of course, the media talking heads tell us that this is just one more “disaster waiting to happen”. Whether it is December, January, or a later date, we all know rates will be going up. The best defense is to be conservative in your bond holdings. Large U.S. companies that do a lot of business overseas have seen their earnings drop because of the strong U.S. dollar. This fight among currencies is ongoing, and changes every day. The dollar is currently the cleanest shirt in the dirty currency laundry, but this will change over time.
Inflation is at 0%. Oil prices are still about 50% lower than they were a year ago, and commodity prices in general remain depressed. This has been a boon to consumers. Even taking out the volatile energy and food sectors, inflation is less than the 2% threshold the Fed has established for higher interest rates. Housing and medical care are the two areas with gains.
At we noted last month, volatility is something we must accept, unless we are able and willing to receive after-tax-and-inflation negative returns from bank deposits and CDs. There are times we might wish we more aggressively invested, but there are also times when we thankful we are not. And so it goes. Secure an allocation that matches your risk profile and long-term goals, and then hang on. Patience is indeed a virtue with investing.
|Asset Index Category||Category||Category||Category||10-Year|
|2015 To-Date||3 Months||2014||Average|
|Dow Jones Industrials – Large Cos||-0.9%||-0.1%||7.5%||5.4%|
|S&P 500 Index – Large Companies||1.0%||-1.2%||11.3%||5.6%|
|S&P 400 Index – Mid-Size Companies||-0.5%||-3.9%||8.2%||7.5%|
|Russell 2000 Index – Small Companies||-3.6%||-6.2%||3.5%||6.0%|
|MSCI EAFE Index – Developed Intl.||-0.1%||-5.8%||-4.9%||1.2%|
|MSCI EM Index – Emerging Markets||-11.3%||-6.0%||-4.6%||3.2%|
|Short-Term Domestic Bonds||0.7%||0.0%||1.1%||2.9%|
|Global Government Bonds||-2.6%||1.9%||1.7%||4.0%|
|Bloomberg Commodity Index||-16.2%||-4.7%||-24.4%||-5.1%|
|Dow Jones U.S. Real Estate||2.8%||3.0%||27.7%||7.5%|
|World Allocation Global stocks, bonds, commodities||-1.6%||-2.6%||1.5%||5.1%|
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.