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.

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

By Ken Evason, CFA and Pam Evason, CFA

Don’t let the slightly negative return for the S&P 500 in 2015 fool you – this was anything but a benign year.  It was a year in which oil tumbled, the dollar soared, China’s markets did some of each, the Fed raised rates for the first time in nine years, a flash crash occurred, the race for president kicked off, and the markets fluctuated more than we’ve seen in years. 

All of these events resulted in flat to negative returns for almost all asset classes. See below table for highlights of asset class returns for 2015 (click image to expand)

Commend yourself – you endured the roller coaster of 2015 and now we turn our sights to 2016.  What do we anticipate for the new year?

  • Energy prices at now 12-year lows will be a catalyst for growth going forward, particularly in consumer names
  • Global economy will strengthen from here, aided by demographic trends and ongoing accommodative monetary policy, which will translate to rising wealth levels across the globe
  •  Patient investors will be rewarded with attractive returns from portfolios tilted towards global equities and away from long-dated fixed income
  •  Select developing economies will benefit from lower energy prices and rising middle class populations
  • Stabilization in the US dollar and rebound in commodity prices will be positives for global markets

With all that said, the first several trading days of 2016 brought even more volatility, with equity indexes down over 6% year to date.  Markets are fundamentally based on supply and demand and simply put – these price declines means we are in a period where sellers are outpacing buyers.  What’s driving that?  A variety of factors including: profit taking upon the start of a new tax year, concerns over China’s equity markets and slowing growth, and ongoing declines in energy and increases in the USD.  We anticipate the selling to slow and markets to stabilize shortly – and also anticipate stronger than expected earnings in key sectors (technology and consumer discretionary) to provide additional good news in the new year.  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.