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As we head into the last quarter the broad Morningstar index is up 10.51% YTD and, again, growth has the lead over value. We may be in a Goldie Locks economy: not too hot and not too cold. By almost every measure the economy is growing nicely and we have left behind the anemic growth rates we have had for years. Mortgage delinquencies are at rock bottom levels; employment with minorities are at all-time highs; the ISM (Index Supply Management) non-manufacturing index is at an all-time high; incredibly, EXPORT orders are up, and, finally, the optimism index is also up. However, these are balanced by worries of a trade war and the length of the current bull market. I will attempt to address both these worries.
The markets overcame the previous quarter’s loss leaving the Morningstar broad index up 3.08% for the year. Again, the growth side of the market leaving the rest in the dust. Last quarter I wrote about volatility and we are experiencing it. Given our headline news I’m not surprised.
The word for this quarter is volatility and I think we will see more of it. The broad Morningstar index is down .61% year-to-date. The small stocks were down 1.58%, followed by large caps with a minus .67%. The market has pulled back from what a lot of people felt were overly high valuations. I think the reason we have seen the big swings in the indexes are threefold; the technology stocks have dropped, potential rate increases from the Fed, and fear of a trade war.
I hope you enjoyed our holiday season. The markets have continued their upward momentum. The broad Morningstar Index was up 21.47% for the year. The FANG companies (Facebook, Amazon, Netflix, and Google) were all up an amazing 50+% except for Google which was up a mere 35%. The question I hear most is, "How is this happening and will it continue?" I think there are several things causing this.
The market continues its upward drive with the Morningstar index up 14.10% for the year and up 4.53% for the quarter. Year-to-date the large companies are leading the way up 15.09%. These are great numbers and as of Monday nights close they are even better. On October 9th we will have the 10th anniversary of the market high for the S & P 500 before the "Great Recession". The market bottomed two years later on March 9th with a 40+% drop from the peak. According to Brian Westbury, the economist at First Trust, if you had a choice of investing in the S & P 500, a 10-year Treasury note, Gold, Oil, Housing, or Cash, you would have done best in the S & P 500 with an annual average gain of 7.2% essentially doubling your money in 10 years.
The Markets continued their upward movement this last quarter and half way thru the year the broad Morningstar stock Index is up 9.16%. This letter could be pages longer discussing, Amazon's purchase of Whole Foods, the State of Illinois multibillion dollar funding/debt problem and its potential effect on the Municipal Bond market, European cyber-attacks, the changes that Rex Tillerson is having at the state department, the changes at the Veterans administration or how the Federal reserve plans to shrink its very bloated balance sheet and how all these things affect our investment markets.
The "Trump Rally" has continued with another 5.91% gain in the broad Morningstar Universe this last quarter. Since the election the S&P is up about 11%. The Fed raised interest rates the .25% as they have been promising for several years and the market yawned. The Fed has intimated that they will raise rates two more times this year. I’m thinking it may only be one more. The more important thing will be to start to shrink the Federal Balance sheet. This can be done by the Feds not buying their own bonds and just letting them mature and be "retired". I believe the market will continue the rise, but at a much slower pace, having already priced in anticipated lower taxes and reduced regulations.
I hope this finds you and your family well and that you had a wonderful holiday and New Year. 2016 was an amazing year. We lost David Bowie, Prince, and Carrie Fisher of Stars Wars fame to mention a few losses. I think the biggest event is our president elect Donald Trump. This surprised a lot of people. A lot of the press and the pollsters are still in shock. This election and it causes will be studied for years.
Another year has passed and again the markets were kind to us.
The overall markets enjoyed their best quarter of the year going up an average of 4.26%. The small cap section is up 7.28% versus 4.79% for mid cap and 3.82% for large cap. The year-to-date numbers are 8.12% for the broad market, large caps up 7.11% mid-caps 10.39% and small caps leading with 12.43%. It's another example of why being diversified pays off.
It is hard to believe that half the year is over. As of June 30, 2016 the U.S. Broad U.S. Market Index is up 3.49%, per Morningstar. This is after a very rocky first 6 weeks of the year and the most recent "Brexit". Large swift movements down followed by just as swift rebounds.
What a way to start the year - the major indexes falling in January and early February a breathing taking -10.30% for the US, -12.8% for non US Developed (Europe) and -10.7% Emerging Markets.
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