View from the Chair: Windermere's Market Outlook (February 2016)

By Ken Evason, CFA and Pam Evason, CFA

For the first time in a long time, winter in Wisconsin ranks far lower on a "harshness" scale than the markets and their performance.  As you are well aware, January was another challenging month across asset classes, with most major indexes exhibiting additional weakness.

 Click on the table for highlights of asset class returns for the month 

As we stated last month, we expect 2016 to be a year of increased volatility.  Markets like certainty and stability and there are several situations in flux at the moment that are resulting in the exact opposite.  What are some examples? 

  • Energy - prices have fallen to levels not seen in more than a decade and markets are seemingly trading in lock-step with moves in oil prices.  The supply & demand equation for oil (and many other commodities) needs to reach stability.  This will take time but as certain marginal producers go off-line and there is additional consolidation, we should see less movement
  • China - there is an endless loop in the media concerning the world's largest country and its slowdown.  Keep in mind China is in the midst of a major transition from a commodity using/infrastructure building economy to a consumer driven economy.  With a 2015 growth of 6.9% and a middle class population that is growing every day, the country is far from stagnant but needs time to work thru this pivot point
  • Interest rates - The US Federal Reserve raised interest rates in late 2015, and almost instantaneously, the chatter began surrounding when and if the Fed will raise rates again in 2016.  Why the debate?  While unemployment metrics are improving (which would be a reason to raise), many factors point the other way (slowing growth, other countries staying accomodative, strength in the US dollar)
  • US Dollar - Uncertainty in foreign markets and increasing interest rates in the US have once again increased demand for US dollars.  Great news for US citizens traveling abroad but bad news for US exporters and US investors in international markets.
  • Presidential Race -  The presidential race is in full swing, with key primaries on the very near horizon.  For the first time in a long time, there is incredible uncertainty surrounding the entire process, including parties that don't seem in full support of the current leading candidates, as well as candidates that may still enter the race. 

So, where does that leave us? In a word, it leaves investors in transition.  As we know from our own lives, transition can be uncomfortable, challenging, and bit unsettling.  But it can also present opportunities for learning and growth.  Our position from January remains - patient investors will be rewarded and should seek opportunities to deploy additional capital in certain sectors and countries.  Stay the course.  Stay optimistic.  Stay invested.

We thank you for your ongoing support and rest assured – we constantly strive to provide  attractive risk adjusted returns for our clients.