What a quarter it has been. As the new year began, the markets lost 10% seemingly before the champagne was sucked dry from the celebratory New Year’s glasses. And in equally hasty fashion the weak money was pushed out of the market and those who were looking for good entry points moved in snapping the market all the way back up to even by quarter end; a text book V shaped bottom where those with disciplined entry and exit strategies emerged unscathed, or even stronger, while those trading on emotion almost certainly lost. Exciting? Yes. But much ado about nothing? Perhaps. Those of us who maintain “wish lists” sometimes for a year or longer, picked up some excellent positions, planting seeds which will grow nicely in the years to come.
I started in this business during the correction of 1998, a correction so mild by today’s standards, many of you probably don’t even remember it. I worked with many of my current clients through the 2000-2002 collapse and of course who needs reminded of 2007-2009. The reason I bring my personal experience to your attention is because like anyone else, my career experience has an influence on my perspective. I learned early on it’s much better from a financial, emotional and mathematical (with regard to investment performance) perspective to protect against significant loss rather than try to capture every possible gain.
As I’ve moved through my career I’ve also learned to filter out noise and focus on fundamentals often pointing out the negative through these writings because the negative is where much of our risks, those risks which can be known, tend to be found. As I’ve talked with clients over the past 6 months or so I’ve described the market as a “grind” or a ‘tug of war”. By definition a tug of war is a contest in which two sides pull at opposite ends of a rope until one drags the other over a central line. Presumably both sides are strong and have periods where either may appear to be wining. A market could easily be pictured this way as an ongoing back and forth battle with the Bulls slowly pulling stock prices up a chart picture that spans 5, 10 or 15 years.
A large part of my job is to watch this struggle between the Bulls and Bears and evaluate as new data comes in, which side the new information may aid in the perpetual struggle. In my research I give positive data reasonable weight but do have a bias toward a focus on the negatives. Because of this, too often I don’t share with you the positives that do have a very real impact on our economy and market.
While sound research requires point counterpoint consideration, we have spent time focusing on the counter points to the data listed below in both client meetings and previous quarterly commentaries. Let’s start this year with a focus on the positives and look at what good is happening right now in our economy:
- At $35-$40 per barrel of oil, most oil companies can do well and Americans can save on gas and save or spend that money on other items. Lower oil prices also have a dampening effect on inflation.
- The United States has a tightening job market adding 242,000 jobs in February and 215,000 in March while initial jobless claims have been consistently on the decline.
- The tighter job market is pushing personal incomes higher and over the past several months we have seen increases in wages.
- Consumer spending is the driving force of economic growth, as consumption makes up two thirds of gross domestic product. US retail sales have stabilized in recent months suggesting consumers are becoming more confident due to higher job rates, higher incomes and may become more willing to spend the money which would have otherwise been spent on higher energy prices.
- Though dipping during the market turmoil of February, consumer confidence has remained strong.
- Sales of new homes have rebounded in recent months as the housing market regains some steam as solid jobs growth gives more people the means to buy.
- ISM’s measure of manufacturing activity rebounded this quarter breaking its streak of five consecutive months in contraction. The ISM reports suggest a modest pace of economic growth.
I’m not making the case for a raging bull market. I am however pointing out there are real positives in our economy right now. When I describe the push and pull of what we have experienced over the past year, we are feeling the debate and struggle between those who believe our best days are behind us and those who feel economic greatness lies ahead. While there will be struggles and the path won’t be smooth, I’m in the camp that believes the United States is the economic engine of the world and will continue to fill that role for decades to come. That being my belief, there are some great companies which will provide excellent value to investors over the coming years. Clients can expect to see additional investment throughout 2016 as I continue to work to build long lasting, sustainable portfolios that perform well in good times and remain solid in the storms which are certain to come.
Michael R. Harding, CFP
President / Portfolio Manager