Market Commentary

In the over 15 years I have been watching and participating in the markets, there is one absolute I have learned: Markets hate uncertainty! When markets aren’t sure of what impact an upcoming event is going to have they tend to perform very poorly. It I also clear that markets don’t like negative surprises (but then, who does?).

When there is a negative surprise, markets often react very quickly and very negatively. We saw this play out this last month with the news around Brexit. The market anticipated that England would stay in the European Union. When the voters elected to leave, the market’s reaction was a swift downturn. After a couple days when things didn’t spread as feared, the markets calmed down and were able to look forward again.

In reality, the market has, overall, been pretty flat this year; it seems to just being going up and down, without a sustained up or down trend (though we have had some downward spikes). There are two more big uncertainties coming up that will begin to weigh on markets: the outcome of the upcoming presidential election, and when the federal reserve will decide to raise interest rate again. My big concern overall for the stock market is that corporate earnings have gone down over the last few quarters. Until we have corporate earnings growth it will be very difficult to have a sustained rally in the stock market. Also, while the fear has subsided internationally, there is still more turmoil and unrest over the long term impacts of Brexit.

Having now recounted all the negatives. There are some very encouraging signs. Oil has rebounded to a more sustainable level, the employment numbers are improving, wages are increasing, people satisfaction with their economic situation is improving, banks are lending, housing is improving, there has been a lot of good economic numbers come out this week. These improved signs of economic growth should lead to improving corporate profits. If I had to guess how the rest of the year would play out I would predict that we will continue to churn sideways through November and then rally into the end of the year.

Current investment positioning: Our models are over 100% invested in diversified mutual funds which are consistent with each model’s risk profile. It is my intention to remain this way through the rest of the year, but, as always, if conditions change or warrant it, we will make appropriate changes.

We appreciate your trust and confidence.