CTWM January 2016 Investment CommitteeSubmitted by Connecticut Wealth Management, LLC on January 8th, 2016
Normally, the first few trading days of the year are buoyant as investors look optimistically ahead. 2016 has not followed this path. A rise in geopolitical tensions stemming from North Korea’s possible nuclear test, discord between two of the most powerful Middle Eastern countries, and the ongoing fear of terror attacks at home and abroad have all weighed on investor sentiment. Perhaps more prominently, continued concerns arising from the slowdown of the Chinese economy have brought about volatile movements in global currencies and have driven down the price of oil to levels even lower than in the depths of the Great Recession.
While some investor confidence has been rattled by the recent volatility, overall consumer and corporate optimism remains a bright spot. To date, there are only limited signs that the market’s global growth concerns have begun to negatively affect U.S. economic activity. The labor market continues to showcase strength; as we pen this note, the December employment report came out and showed 40% more jobs created than expected, yet another recent example of the solid footing on which the U.S. economy stands. The services sector, which represents over 80% of domestic output, remains strong and has not been hindered by the global weakness in energy prices or manufacturing.
It is important to remember that investing is about endurance and about resisting the temptation to succumb to short term panic. Volatility has always been a part of investing and always will be. In fact, over the last 15 years, every calendar year has seen at least one pullback of at least 6% and a median correction of 14%. Yet while volatility is normal (and even expected), we recognize that is always nerve-wracking. The 5%+ drop in the US stock market is the worst start to the year in history. In second place is 1991. That year the market ended the year UP 20%.
We expect volatility to remain heightened for the remainder of 2016, which is common as the business cycle ages, and in turn, makes sticking to your long-term investment plans even more important. What remains as the key to weathering these short-term bouts of volatility is a commitment to a well-formulated plan, a long-term focus, and good headphones to tune out the noise of short-term negativity. While the stock market grabs headlines and stokes fear, bonds are actually in positive territory year to date and are doing exactly what we ask them to do, which is to act as shock absorbers in times of a volatile stock market. It is times like these that serve as reminders for why we focus so intently on planning and aligning the investment decisions we make on your behalf with how much risk/market exposure you need in order for your financial goals to be met. In this light, we will continue to remain vigilant in looking for ways to minimize downside risk while maximizing upside return opportunities.
As always, please feel free to reach out to us if you have any questions.