When 2016 started, we were met with an immediate and sharp sell down in the stock market. 2015 had not been any great shakes either (S&P500 was up 1.19% with dividends). So, coming off a disappointing 2015, investors were met with fear and disappointment right off the bat. Indeed, from January 1st, 2016, to February 12th, 2016, the S&P500 returned a negative 8.77%. By November 4th, 2016, the market managed to scratch out a positive 2.01% rise in price from the beginning of 2016.
At that point, people were looking at our Presidential election with great uncertainty. Most people we spoke with were very uncertain what would happen if either candidate were elected. This gave even veteran investors some cause for concern. Uncertainty is never a happy state for investors.
We all know what happened. The election came and went and the market has responded with a big run. A quick look at the numbers shows that since the February low (a little over a year ago), the stock market (S&P500) has risen 30% in price as I write this. Since November 4th, it has risen 13.8% in price. Since the beginning of the year it has risen 3.85% in price.
What about Bonds?
As many of you know, we believe that the 40 year raging Bull Market in bonds may be coming to an end. Those who have bought bonds over the last 40 years and have always seen them rise in price may have to re-think their assumption of a bond market that forever rises in value and interest rates that always go down. The price of a popular ETF that tracks the 7-10 year Treasury Bond (symbol IEF) shows a negative 7.67% drop in value since July 8th, 2016 to today. The S&P500 (stock market) shows a positive 11% return over the same time period. That is almost a 19% difference in returns for the two markets.
We certainly make no predictions as to what bond prices will do, we just think it is smart to not count on buying bonds and always have them go up in value. We think it would be smart to look at bond prices with a bit more scrutiny, as there certainly is the possibility that interest rates may rise and bond prices may go down as we go forward. Bonds are still a needed and desired asset class, it just may be that they don’t produce very positive returns going forward.
So, What Now?
It would be normal, and some say, very healthy for the market to correct itself somewhere in here. The Fed is continuing to raise the Fed Funds rate. Most anticipate 3 rate hikes this year. Earnings and Inflation have remained a net positive for the stock market. We have taken some profits in accounts that were starting to get over-weighted in Stocks. We will re-deploy this money, and we in some ways wish we would get a bit of a pull back. Absent that, we will work this money back in according to our desired asset allocation.
We are happy with the market’s action, and look forward to the rest of 2017. We hope you are all having a good year. Please let us know if there is anything we can do to help you.
If you have questions, concerns, or just want to discuss investing options, please feel free to contact us today.