Market Insights

- 2015 4th Quarter

Global Markets: Neutral

China continues to lead the way in creating worry and uncertainty for global markets.  Concerns endure about currency valuation. In addition, the inexperienced Chinese investor has rushed to exit the market as controls have been put in place to create an orderly market.  (Remember there are similar controls in place in the US and around the world, but they are new to China and widely misunderstood.)  In other international markets, continuing low commodity prices, and weaker than average growth have not allowed recoveries where we might have expected them.  The outlook remains neutral to negative, except in Europe where there is restrained optimism about modest growth prospects fueled by easier credit, and an unemployment rate that is neither too high, preventing the consumer from spending, nor too low, signaling a dried up worker pool.


U.S. Economy: Good

U.S. Economic data continue to be healthy.  Even though 2015 didn’t deliver good equity returns, dividend streams remained stable, and valuations held.  Although the U.S. worker hasn’t seen significant wage growth yet, unemployment continues to inch down.  This continued trend must create pressure on wages as workers are able to trade up in tighter workplace markets.  Housing also continues to perform.  The recovery from the crash in 2008 and 2009 continues with returns in value happening in more rural and marginal environments.  The young buyer Is also beginning to return to the pool, as interest rates stay low, urgency is created by rising prices, and job prospects feel more stable.  Credit is still inexpensive, and the consumer is taking advantage of it, with increased use of credit cards and other lending instruments.  Nonetheless the U.S. consumer  is still sitting on a  historically high cash reserve, indicating both a capacity to spend and a capacity to invest.    Earnings have been respectable, with the 4th quarter looking strong.


Inflation: Good

Inflation is not pressuring the consumer for now and into the near future.  Low energy prices, low non-energy commodity prices, the strong U.S. dollar, and many other factors have kept prices flat overall.  This helps the consumer, who is a key driver of the U.S Economy, and the global economy to accelerate spending.


Interest Rates: Good

Now that we know that Yellen is capable of raising rates, even if at a pace and magnitude that continues to be dovish, it seems likely that rates will inch up more in 2016.  At a slow pace and in baby steps this should actually be good for the market, allowing banks to increase earnings from the spread, consumers to earn interest in savings, but still provide aggressively low interest rates for corporations and consumers.  


U.S. Stock Market: Cautiously Good

The mid-cycle decline that held through the end of 2015 started a full blown sell off during the first 5 trading days of 2016.  In fact it appears that this marks the worst first 5 days in the market’s history.  Despite this negative turn, valuations remain in line with historical norms, earning s continue to look fair, and hiring continues to rise.  These are among the factors that support a laconic bull outlook.  We will continue to look for increase in energy prices and interest rates which should help to create greater profitability toward the end of the year.  There remains a great deal of anxiety in the markets however, with many unknown factors, including the U.S elections, which could continue to create brushfires like we have seen in 2015.  This is a great market to dollar cost average our clients into, as they will be able to take advantage of the volatility.


U.S. Bonds: Cautious

If equity markets strengthen, 2016 could be tough for the bond investor.  With rising rates we will see declines in bond and bond fund valuations which might spook some investors out of these investments.  The 10 year ended the quarter at 2.27%2.  The effective active management of duration, quality, security type and yield will be essential to counteract the effects of rising rates.


[1] YTD 2015 Total Return data sourced from and



[2] Source: JP Morgan Guide to the markets, Q1 2016.


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