Market Commentary
Investment Newsletter January 2016
Summit Financial Resources, Inc.
By Robert W. Lamberti, CFA VP & Co-Chief Investment Officer
Monthly Summary Risk assets began 2016 on a down note. The early days of January proved the worst annual start for U.S. stocks in history, and many of the world's stock markets dropped into bear market territory (down 20%) by mid-month. Expansionary measures taken by the Bank of Japan at month-end helped to incite a worldwide rally, but related gains were insufficient to fully erase losses. In the end, the S&P 500 finished with its worst January return since the financial crisis. The culprits behind the rough ride were familiar themes: dollar strength, China slowing, oil/commodity price declines, Fed uncertainty, and earnings weakness. Fundamentally speaking, however, investor fears appear overblown in many cases and the economic landscape in the U.S. is reasonably healthy. Consider the following: •
Supply/demand issues in the oil market are being resolved over time, and low oil prices are a positive for U.S. consumers and the country's trade balance.
•
Slower growth in China, the world's second largest economy, can certainly have secondary impacts with unforeseeable consequences. That said, thus far China's slowdown has been gradual and in line with expectations. And from a direct trade perspective, U.S. exports to China account for less than 1% of domestic GDP.
•
Earnings weakness is predominantly the result of both dollar strength and oil price declines. Neither factor can continue indefinitely, and history suggests they will reverse in time.
•
U.S. consumers (70% of the economy) are benefitting from wage gains, low gasoline prices, and strong job creation. Credit is available, housing is doing well, auto sales hit an all-time high just last year, and confidence is strong and stable.
•
As for monetary policy, it is highly unlikely the Federal Reserve will move aggressively in the face of weak inflation and capital market disruptions.
Economic Data General GDP growth Trade balance Employment Initial jobless claims Continuing claims Change in nonfarm payrolls Unemployment rate Average weekly hours Consumer Consumer confidence index (Conf. Board) Retail sales growth (YoY) Change in consumer credit
Prior 2.0% (Q3) -$44.6B (Oct)
Current 0.7% (Q4) -$42.4B (Nov)
Prior 294,000 (1/16) 2.2MM (1/9) 252,000 (Nov) 5.0% (Nov) 34.5 (Nov)
Current 278,000 (1/23) 2.3MM (1/16) 292,000 (Dec) 5.0% (Dec) 34.5 (Dec)
Prior 96.3 (Dec) 1.7% (Nov) $15.6B (Oct)
Current 98.1 (Jan) 2.8% (Dec) $14.0B (Nov)
20160203-0116
Summit Financial Resources, Inc.
January 2016
Manufacturing & Service ISM manufacturing index ISM non-manufacturing index Durable goods orders growth Industrial production growth Capacity utilization Real Estate New home sales Existing home sales Case-Shiller home price index (YoY) Inflation Consumer price index/Core (YoY growth) Producer price index/Core (YoY growth)
Prior 48.4 (Nov) 56.6 (Nov) -0.5% (Nov) -0.9% (Nov) 76.9% (Nov)
Current 48.2 (Dec) 55.3 (Dec) -5.1% (Dec) -0.4% (Dec) 76.5% (Dec)
Prior 491,000 (Nov) 4.8MM (Nov) 5.5% (Oct)
Current 544,000 (Dec) 5.5MM (Dec) 5.8% (Nov)
Prior 0.5%/2.0% (Nov) -1.1%/0.5% (Nov)
Current 0.7%/2.1% (Dec) -1.0%/0.3% (Dec)
Data Source: U.S. Bureau of Economic Analysis
Data Source: The Conference Board
Data Source: U.S. Federal Reserve
Data Source: U.S. Census Bureau
Market Returns January 2016 Cash and Fixed Income Barclays Aggregate Bond Barclays Municipal Bond Barclays Gbl Agg. ex. U.S. Alternatives Bloomberg Commodity DJ US Real Estate
1.4 % 1.2 % 0.5 % -1.7 % -4.0 %
January 2016 Domestic Equities Wilshire 5000 S&P 500 Russell 2000 International Equities MSCI EAFE (Developed) MSCI EM (Emerging)
-5.5 % -5.0 % -8.8 % -7.2 % -6.5 %
Data Source: Morningstar
2
Disclaimers This commentary was written by Robert W. Lamberti, CFA, VP and Co-Chief Investment Officer of Summit Equities, Inc. and Summit Financial Resources, Inc. Source of performance: Morningstar®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poor's 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgage-backed securities, assetbacked securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, may have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with “unsubscribe” in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.’s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.
20160203-0116
Summit Financial Resources, Inc.
By Robert W. Lamberti, CFA VP & Co-Chief Investment Officer
Monthly Summary Risk assets began 2016 on a down note. The early days of January proved the worst annual start for U.S. stocks in history, and many of the world's stock markets dropped into bear market territory (down 20%) by mid-month. Expansionary measures taken by the Bank of Japan at month-end helped to incite a worldwide rally, but related gains were insufficient to fully erase losses. In the end, the S&P 500 finished with its worst January return since the financial crisis. The culprits behind the rough ride were familiar themes: dollar strength, China slowing, oil/commodity price declines, Fed uncertainty, and earnings weakness. Fundamentally speaking, however, investor fears appear overblown in many cases and the economic landscape in the U.S. is reasonably healthy. Consider the following: •
Supply/demand issues in the oil market are being resolved over time, and low oil prices are a positive for U.S. consumers and the country's trade balance.
•
Slower growth in China, the world's second largest economy, can certainly have secondary impacts with unforeseeable consequences. That said, thus far China's slowdown has been gradual and in line with expectations. And from a direct trade perspective, U.S. exports to China account for less than 1% of domestic GDP.
•
Earnings weakness is predominantly the result of both dollar strength and oil price declines. Neither factor can continue indefinitely, and history suggests they will reverse in time.
•
U.S. consumers (70% of the economy) are benefitting from wage gains, low gasoline prices, and strong job creation. Credit is available, housing is doing well, auto sales hit an all-time high just last year, and confidence is strong and stable.
•
As for monetary policy, it is highly unlikely the Federal Reserve will move aggressively in the face of weak inflation and capital market disruptions.
Economic Data General GDP growth Trade balance Employment Initial jobless claims Continuing claims Change in nonfarm payrolls Unemployment rate Average weekly hours Consumer Consumer confidence index (Conf. Board) Retail sales growth (YoY) Change in consumer credit
Prior 2.0% (Q3) -$44.6B (Oct)
Current 0.7% (Q4) -$42.4B (Nov)
Prior 294,000 (1/16) 2.2MM (1/9) 252,000 (Nov) 5.0% (Nov) 34.5 (Nov)
Current 278,000 (1/23) 2.3MM (1/16) 292,000 (Dec) 5.0% (Dec) 34.5 (Dec)
Prior 96.3 (Dec) 1.7% (Nov) $15.6B (Oct)
Current 98.1 (Jan) 2.8% (Dec) $14.0B (Nov)
20160203-0116
Summit Financial Resources, Inc.
January 2016
Manufacturing & Service ISM manufacturing index ISM non-manufacturing index Durable goods orders growth Industrial production growth Capacity utilization Real Estate New home sales Existing home sales Case-Shiller home price index (YoY) Inflation Consumer price index/Core (YoY growth) Producer price index/Core (YoY growth)
Prior 48.4 (Nov) 56.6 (Nov) -0.5% (Nov) -0.9% (Nov) 76.9% (Nov)
Current 48.2 (Dec) 55.3 (Dec) -5.1% (Dec) -0.4% (Dec) 76.5% (Dec)
Prior 491,000 (Nov) 4.8MM (Nov) 5.5% (Oct)
Current 544,000 (Dec) 5.5MM (Dec) 5.8% (Nov)
Prior 0.5%/2.0% (Nov) -1.1%/0.5% (Nov)
Current 0.7%/2.1% (Dec) -1.0%/0.3% (Dec)
Data Source: U.S. Bureau of Economic Analysis
Data Source: The Conference Board
Data Source: U.S. Federal Reserve
Data Source: U.S. Census Bureau
Market Returns January 2016 Cash and Fixed Income Barclays Aggregate Bond Barclays Municipal Bond Barclays Gbl Agg. ex. U.S. Alternatives Bloomberg Commodity DJ US Real Estate
1.4 % 1.2 % 0.5 % -1.7 % -4.0 %
January 2016 Domestic Equities Wilshire 5000 S&P 500 Russell 2000 International Equities MSCI EAFE (Developed) MSCI EM (Emerging)
-5.5 % -5.0 % -8.8 % -7.2 % -6.5 %
Data Source: Morningstar
2
Disclaimers This commentary was written by Robert W. Lamberti, CFA, VP and Co-Chief Investment Officer of Summit Equities, Inc. and Summit Financial Resources, Inc. Source of performance: Morningstar®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poor's 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgage-backed securities, assetbacked securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, may have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with “unsubscribe” in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.’s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.
20160203-0116
