Market Highlights: Q1 2016
There are two distinct ways to participate in the stock market: speculating and investing. Speculators get paid when they sell something to someone else for more than they paid. Speculation involves trading and can deliver dramatic wins and losses. It is a zero sum game because for every buyer there is a seller on the other side of the trade. Investing, on the other hand, is rooted in economic fundamentals and analysis. Investors get paid when companies pay ever-growing dividends that are reinvested and compounded. Investing leverages lower-risk investments to deliver more predictable, consistent returns.
My goal is to invest, grow, and protect your assets. And while speculation is best left to those with a bigger risk appetities, every quarter I must act like a speculator and deliver the current “weather forecast.” But I do so with a caveat. Why? Because in investing, the short-term forecast doesn’t matter. Just like the laws of physics keep the world spinning, the laws of capitalism and economics (and the “miracle of compounding”) reward investors—no matter what the “weather.” The forecast may be wrong about tomorrow’s “big storm,” but surely spring will become summer.
That said, the first quarter of 2016 didn’t include any major storms (even if the seas weren’t entirely calm). The S&P 500 and the Dow Jones Industrial Index eeked out gains of .77% and 1.49% respectively after a late rally. NASDAQ tech stocks, international stocks, and smaller US company indexes all declined slightly, simply because supply is outpacing demand.
The Federal Reserve’s March report delivered a snapshot of the current economy. It observed many positives: strong job gains and lower unemployment, rising household spending fueled by declines in oil prices, advancing business investments, and slow but steady recovery in the housing sector. On the (slightly) down side, the strong US dollar has weakened exports, and inflation is below the Fed’s 2% target. In response, Yellen and the Fed chose to hold off on raising interest rates—a move they hope will encourage the desired upswing in inflation and work force participation.
There was also a variety of non-financial, but significant global events that may impact the economic outlook. President Obama visited Cuba and announced a plan to open trade and tourism with the US. The Presidential campaign veered into the cult of personality, emotion, and violence. Millions of Syrian refugees fled their homes to escape civil war only to be denied refuge and a safe home for their families. Terrorist attacks shook the world again in Ivory Coast, Belgium, Pakistan, Iraq, and Turkey. And orders for the new Tesla 3 are beating all expectations as consumers strive to reduce their carbon footprints.
No quarterly market update would be complete without a forecast, so here it is: Expect longer days, rising temperatures, and a few storms and droughts. Just as predictably, stock prices will fluctuate, speculators will trade, and technology will amaze us. Enjoy the change in the seasons and be a patient and confident investor!
Questions or concerns? Send me a note. As always, I’m here to help.