EQM Capital Blog

EQM Capital LLC – 1Q 2017 Market Recap – Fundamentals Are Trumping the Trump Trade

Posted by on Apr 4, 2017 in EQM Capital Blog

First Quarter 2017 Market Recap

Building on post-election gains, the first quarter of 2017 finished with solid stock market performance, with the S&P 500 posting its biggest quarterly advance since the end of 2015, trading up 5.5%.  A brightening economic outlook offset investors’ waning enthusiasm for the Trump Trade.

Upbeat market sentiment, underpinned by hopes that the Trump Administration’s market-friendly policies would be written into law, has been fading. As a result, investors shifted away from “Trump trades” such as Financials and Industrials and began to bet on growth sectors such as technology. The tech sector in the S&P 500 jumped 12%, making it the best performing sector in Q1. The NASDAQ Composite gained 9.8%, for its best quarter since 2013.

Despite rising political uncertainty during the quarter, stocks have stayed the course and pullbacks have been reasonably minor. The CBOE Volatility Index, Wall Street’s fear indicator, posted its second-lowest quarterly average on record. And the average daily percentage change for the Dow Jones Industrial Average during the quarter was the lowest since 1965.

Up until March 21st, the S&P 500 had gone 64 consecutive trading days without declining more than 1% at any point in the trading session.  On that day, the market finally declined 1.24%, its sharpest decline since October.

The stock market has remained resilient because the economic data has been solid and confidence indicators strong. But the rally’s leaders have changed with investors pulling back from banks and infrastructure plays. The S&P 500’s financial sector declined 2.9% in March and industrials dipped 0.8%.

The failure of the Republican led Congress to repeal and replace the Affordable Care Act, has led investors to question the Trump administration’s ability to implement other items on its agenda such as corporate tax reform, looser regulations, and fiscal spending initiatives such as infrastructure.

Instead, investors have shifted their focus on companies that have the potential to serve up better-than-average returns such as technology companies. For example, Apple jumped 24% in the first quarter, lifted by solid iPhone sales and positive expectations for its next model.

Growth stocks, companies that investors expect to post stronger earnings during times of economic prosperity, have outperformed their value peers. The Russell 1000 Growth Index ended the quarter up 8.5%, far outpacing the 2.6% advance for the Russell 1000 Value Index.

The U.S. economy has continued to show signs of strength this year. The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, exceeded the central bank’s target for a 2% annual gain for the first time in nearly five years, at 2.1%, and US economic growth in the fourth quarter was revised upward. Consumer and business sentiment indicators are also at high levels. Basically, fundamentals are “trumping” the Trump trade.

Why has the market has taken in stride the fact that the Fed raised rates in March and is planning to raise them twice again this year?

The economy is in the midst of a global growth pickup that started in the second half of last year. The three largest economies – the US, Europe, and China – are all demonstrating solid growth. For the first time since the Global Financial Crisis, there appears to be a major upswing of growth among the world’s major economies.  Improving growth combined with the continuation of reasonably accommodative fiscal policies, have kept risk assets like equities aloft, even as interest rates rise.

Beyond the US market, the MSCI EAFE Index of developed international stocks was up 6.5% during the quarter, while the MSCI Emerging Markets Index soared more than 11%.

Market Outlook

Looking forward, there remains plenty of uncertainty on the horizon, but the underpinnings for economic growth appear to be in place. And despite record market highs, there appears to be enough investor skepticism to suggest the market can still go higher.

According to the AAII, bullish sentiment, expectations that stock prices will rise over the next 6 months, rose 4.1% to 35.3%.  The historical average is 38.5%. So even though the market is at near record highs, investor sentiment is less bullish than the historical average.  That collective skepticism is a good thing.

Yet another good thing is that the market is no longer really a Trump rally, especially given rising uncertainty about Congress’ ability to further his pro-business agenda. The market is now trading on fundamentals such as economic growth, both at home and abroad.  So while President Trump may still give his permission to call this the “Trump Rally,” recent market moves suggest that there is more to this rally than just Trump.

DISCLOSURE: Returns in percent. Past results are NOT an indication of future performance. The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Information provided, whether charts or any other statements regarding market other financial information, is obtained from sources deemed reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.

 

 

 

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EQM Capital LLC – Year End 2016 Market Review and 2017 Outlook

Posted by on Jan 2, 2017 in EQM Capital Blog

Realigning Expectations in the Time of Trumponomics

Ausblick

2016 Year in Review

After getting off to its worst-ever start of the year last January, the Dow Jones Industrial Index ended up logging its best performance since 2013, as investors bank on improving economic conditions.

The Dow, an index of 30 blue-chip stocks, gained 16.5% on a total return basis in 2016. The S&P 500 TR Index added 12.0% for the year, and the NASDAQ Composite rose 8.9% for its biggest gain since 2014.  The Russell 2000 TR Index of small cap names finished the year in double-digit territory, gaining 21.3%.

But it wasn’t a smooth market ride in 2016, as stocks weathered many bumps along the way. There was a global recession scare, Brexit, the collapse and subsequent rally in energy prices, continued uncertainty regarding interest rates and the global economic conditions, and finally the U.S. presidential election of Donald Trump.

The bulk of U.S. market gains came in the second half of the year. A rebound in corporate earnings, accelerating U.S. economic growth, and the stabilization of energy prices all helped reignite investor enthusiasm for stocks.  The rally gained further momentum after the election of Donald Trump on November 8th, as investors bet that the new administration would be able to successfully implement business-friendly policies like tax cuts, less regulation, and fiscal stimulus.

Some of the bullish tax items on table include a proposed 15% corporate tax rate and a one-time repatriation of foreign cash. The prospect of less banking regulation and higher interest rates has sent financials soaring. Energy stocks have rallied on the potential of more drilling and less environmental regulation.  And industrial names have gone up in anticipation of future infrastructure spending measures and trade reforms.

The so-called “Trump Rally” stalled at year end, raising questions how much further the rally will extend into 2017 and if and when it will propel the Dow to a record 20,000 point milestone.  Trump’s policy initiatives could fall short of expectations and the rally has made stocks more expensive by historical measures. According to FactSet, the S&P 500 is trading at 21X their past 12 months of earnings versus the 10-year historical average of 16X.

Here is a brief summary of the year:

  • A Shakey Start – The Dow gets off to worst 5-day start to a year, falling 6.2% thanks to a huge China market decline which sparked global recession fears.
  • Oil Recovers – Oil saw its biggest annual gain since the financial crisis, propelled by a deal among OPEC nations and major oil producers to cut production. Energy was the best-performing sector of the S&P 500 this year, up 24%.
  • Brexit Surprise – The market was surprised and sold off heavily in late June when the UK voted by referendum to leave the European Union. The market quickly shrugged off the news however, sparking a “risk-on” market rally.
  • Economy Improves – Q3 GDP came in at 3.5%, its strongest reading in 2 years. Unemployment has fallen to 4.6% and wage growth has improved. U.S. corporate earnings are growing after several quarters of declines.
  • Fed Raises Rates – After holding off raising rates for most of the year, the Fed finally acted in December and increased rates by 0.25%. The Fed also signaled more increases are on the way given its optimism about the U.S. economy. Expectations for higher rates has hurt bond prices, with bonds experienicing their second consecutive year of declines.
  • Dollar Strong – Brighter domestic economic prospects and higher rates have helped boost the dollar. The WSJ Dollar Index, which measures the U.S. dollar versus a basket of 16 other currencies, is up 3% for the year. The strong dollar could threaten the recent recovery in corporate earnings by making U.S. exports more expensive to foreign buyers.

Here’s a recap of investment performance by risk category and benchmark indices as of 12/31/16 (all indexes are total return):

Target Risk 4Q 2016 2016 3Yr 5Yr
Morningstar Conservative -1.84 4.67 2.35 3.46
Morningstar Moderately Conservative -0.71 6.66 3.26 5.61
Morningstar Moderate 0.38 8.57 3.80 7.45
Morningstar Moderately Aggressive 1.39 10.21 4.13 9.18
Morningstar Aggressive 2.15 11.34 4.47 10.51
Benchmark Indices
Dow Jones Industrial Index TR 8.66 16.50 8.71 12.92
S&P 500 TR (U.S. Stocks) 3.82 11.96 8.87 14.66
Russell 2000 TR (U.S. Small Stocks) 8.83 21.31 6.74 14.46
NASDAQ Composite 1.66 8.87 10.14 17.07
Barclays Aggregate Bond TR (U.S. Bonds) -2.98 2.65 3.03 2.23
MSCI EAFE (International) -1.04 -1.88 -4.20 3.58
MSCI EM (Emerging Markets) -4.56 8.58 -4.90 -1.21
Source: Morningstar 12/31/16

 

2017 Market Outlook

U.S Markets

Since the November 8th election, stocks have already climbed 6%.  And after a 7-year run, the bull market is getting tired.  Much of the 6% gain experienced this year, may have been borrowed from next year.  However, most strategists are looking for S&P 500 aggregate earnings growth of about 7% next year.  And Trump’s pro-business tax cuts and less regulation could add an additional 2% to the corporate bottom line.

Higher interest rates favor stocks over bonds. While higher interest rates should be a positive for financials, they are typically a negative for highly levered and smaller cap companies who borrow at a higher rate.  But less regulation may prove to be an offset and help keep the “free money” flowing.  Other interest rate sensitive stocks such as utilities may also be hurt by rising rates.

Investors who have piled heavily into infrastructure and material stocks may be disappointed as a fiscally conservative Republican Congress is unlikely to approve big spending plans that require borrowing and an increase to the national debt.

Consumer staples stocks (think Coca-Cola and Procter & Gamble) and multi-nationals will encounter an earnings headwind thanks to a strong U.S. dollar.

Outside the U.S.

Investment prospects outside the U.S. in places like Japan and Europe appear favorable in the coming year as valuations are more reasonable and central bank policy is likely to remain very accommodative. In Japan, Abenomics continues to strive to push up inflation by keeping interest rates and the yen low. While Europe is not without its political risks with elections in Germany, the Netherlands, France, and potentially Italy in 2017, it is still likely to benefit from stronger profits, a weak euro, and supportive ECB policy.  Given the likelihood of a continued strong dollar, investors may want to consider hedging their international return exposure.

The outlook for Emerging Markets is more uncertain. Rising U.S. interest rates and a stronger dollar provides headwinds, but a number of emerging economies are benefiting from stronger exports, lower inflation, and central bank support.  China’s leading indicators are starting to pick up for the first time in nearly 4 years.  But trade tensions with the new U.S. administration could put that in jeopardy.

Key Takeaways

  • Trumponomics Trump administration policies are directionally pro-growth and pro-inflation. The U.S. economy is already operating at close to full capacity. Trumponomics has the potential to nudge inflation high enough to support a return to more normal interest rate levels and keep the bull market going.
  • The Fed –Corporate profits have recovered, but a strong dollar and rising wage costs could continue to hinder economic growth. As a result, future rate increases will be small, measured, and limited in number. Another key consideration for the Fed is given that other central banks are not raising rates, this global divergence, amplifies the impact of any U.S. tightening measures.
  • Bonds – Higher interest rates and inflation are a negative for bonds. However, there is still much inherent uncertainty with a new Trump administration. Bond exposure is still necessary as an overall risk dampener in portfolios should equities sell-off.
  • US Small Caps – While investors have been piling into financials and infrastructure stocks, small caps also look attractive in the coming year. Rates may be going higher, but more favorable banking regulations and better credit availability should be a boon to small cap companies. Fiscal stimulus will also be more impactful for small cap companies. A $10 million contract may not be a big deal for a large megacap company, but it is for a small one. And thanks to risking rates, “risk-on” is back on, forcing a rotation away from large-cap dividend payers to smaller, more growthier names. Small caps will also be less exposed to strong dollar headwinds.

Based on these assumptions, investors should consider being positioned as followed:

  • Overall allocation: Overweight stocks, underweight bonds
  • Equity allocation: Overweight Technology, Financials, and Energy; overweight Small Caps, underweight Large Caps
  • International allocation: Overweight Developed Markets, underweight Emerging Markets; currency hedged exposure
  • Fixed income allocation: Overweight High Yield and Bank Loans, underweight long-duration

Of course, as the future often proves to be unpredictable, investors should ultimately remain focused on their long-term goals. Here’s hoping 2017 will be a happy and prosperous year!

DISCLOSURE: Returns in percent. Past results are NOT an indication of future performance. The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Information provided, whether charts or any other statements regarding market other financial information, is obtained from sources deemed reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.

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EQM Capital LLC – Q3 2016 Market Recap – Uncertainty? What Uncertainty?

Posted by on Oct 3, 2016 in EQM Capital Blog

Cure for Uncertainty - Blue Open Blister Pack Tablets Isolated on White.

“The only certainty is that nothing is certain” – Pliny the Elder

If there is one thing for certain, the market does not USUALLY like uncertainty. This quarter appears to be an exception to that rule as U.S. markets staged an impressive rally in the third quarter of 2016 and the mood was “risk-on”. Despite questions about the health of the domestic economy, the timing of the next Fed interest rate hike, the potential outcome of the upcoming presidential election, and economic concerns in Europe, investors shrugged off all these uncertainties. The market’s appetite for risk assets, with higher returns, was not deterred.

Leading the way in the U.S. was the tech-heavy NASDAQ which posted a 10.02% gain during the quarter. Small cap stocks also advanced with the Russell 2000 Index up 9.05%. Large cap stocks lagged their more aggressive peers, but the S&P 500 Index still added 3.85% for the quarter.

As we enter the final quarter of the year, U.S. markets remain solidly in positive territory. The S&P 500 Index is up 7.84%, with the Dow trailing just slightly, up 7.21%. Small cap stocks (Russell 2000) have rallied an impressive 11.46% year-to-date.

Developed international markets delivered positive returns for the quarter, up 5.8%, but remain in negative territory for the year, down 0.85% due primarily to weakness in Europe. Emerging Markets have been rewarded, along with other risk assets, with handsome gains, up 8.32% for the quarter and 13.77% for the year.

In the face of interest rate uncertainty and warnings of a “bond bubble”, fixed income returns, as measured by the Barclay’s Aggregate Index, were muted in the third quarter, only managing to eek out a 0.46% return. The Index has managed to deliver 5.8% for the year. Other interest rate sensitive segments of the market such as REITs and utilities struggled during the quarter against the backdrop of premium valuations and rate hike uncertainty.

Going into the fourth quarter, market uncertainty remains unresolved. After six-consecutive quarters of year-over-year earnings declines, the fourth quarter may signal the return to positive earnings growth. According to FactSet, analysts are expecting a 5.2% positive earnings growth rate in the fourth quarter, thanks largely in part to the sharp rebound in energy and materials. Analysts are also optimistic about next year’s earnings prospects with annual projections for 13% earnings growth in 2017, with revenue growth of 6.1%

That is not to say that all the bad news is behind us. Economic data for September was mixed, with manufacturing and housing data both weak. Auto sales also appear to have peaked which is resulting in downward earnings revisions there. Third-quarter GPD estimates were recently revised downward as well. OPEC production cuts have spurred a rally in oil prices, which is good for some segments of the economy, but harmful to others.

The Fed held rates steady in September, but most Fed-watchers believe the Fed will still raise rates before the end of the year. And then there is all the uncertainty surrounding the outcome of the U.S. election. All these factors combined mean more uncertainty and more volatility in the fourth quarter and going into next year.

As we enter the last quarter of the year, most investors are sitting on comfortable gains. The Bull market rally still appears sustainable given the resumption of positive corporate earnings growth in Q4. Interest rates remain low, and in some places negative, around the world which could keep Fed action at bay even if economic conditions at home appear to warrant an increase. So given that uncertainty and conditions for heightened volatility remain, we continue to remind clients to stay well-diversified and remain focused on their long-term investment objectives.

DISCLOSURE: Returns in percent. Past results are NOT an indication of future performance. The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Information provided, whether charts or any other statements regarding market other financial information, is obtained from sources deemed reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.

 

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EQM Capital LLC – July Market Recap – Market Temperatures Sizzle in July

Posted by on Aug 1, 2016 in EQM Capital Blog

Sun-hot-heat-jpg

While many investors had been expecting a summer swoon, instead the markets delivered some summer sizzle. U.S. stocks posted their best month in July since March. The Dow gained 2.9% and the S&P 500 Index neared a record high, gaining 3.6%. Technology earnings propelled the NASDAQ Composite, which had been trailing most of the year, to a 6.7% return during the month, with strong earnings coming in from as Apple, Google, Facebook, and Amazon.

The market got off to a shaky start to the month as investors were still trying to digest UK’s Brexit referendum vote and the specter of corporate earnings season loomed on the horizon. But a strong jobs report, low mortgage rate infused housing numbers, and better retail sales helped flip investor appetites to risk-on. The Russell 2000 Index of small cap stocks gained 6% in July.

The economic data was not all rosy during the month. Second-quarter GDP came in at 1.2%, which was half the expectation of 2.6%, marking the third consecutive quarter that economic growth lingered around 1%. This tepid pace of economic growth makes it almost certain that the Federal Reserve will not hike interest rates this September and raises the likelihood that there may be no rate increase this year at all.

Strong corporate earnings results have also fueled the market to near record highs. Despite the slow growth economy, most corporate earnings reports have been coming in ahead of consensus expectations. FactSet reports that 68% of S&P 500 companies reporting to date have beaten analyst expectations. And while second quarter earnings remain in negative territory at -3.7% overall, the consensus predicts a return to positive earnings growth by the fourth quarter.

Such an earnings recovery will require the reversal of many headwinds including a strong dollar, low long-term interest rates, and weak energy prices. Oil prices did not have a good July, ending up at a 3-month low.  Renewed drilling efforts spurred by higher prices have investors concerned about oversupply.

As the market approaches record high levels, there is a healthy amount of skepticism among investors. Ironically, this skepticism could help to support future stock gains. While valuations for income producing assets like bonds and dividend-paying stocks remain at a premium levels in the current yield-seeking environment, investors have many beaten down growth names to rotate into.

Outside the U.S., international markets also rallied in July with the MSCI EAFE Index gaining 5% and Emerging Markets up 4.7%. Post-Brexit, eurozone financial and political conditions have stabilized thanks to a fast-tracked appointment of a new British PM.  Global corporate earnings expectations are also on the rise as global economic data shows sign of improvement.  Nine out of ten global sectors have seen a rise in earnings estimates in recent months.  This also bodes well for market returns going into the end of the year.

The recent rotation into risk-on asset classes such as small caps, technology, and non-US securities is a perfect example of why it is important to stay nimble and diversified. Earlier in the year, large cap stocks, in particular those paying dividends, and fixed income were the only game in town.  But now as their valuations have run up to premium levels and investor confidence and risk appetite has increased, this latest market rotation has favored well-diversified, nimble investors.

Going into the end of the year, many headwinds and geopolitical concerns remain, especially given the uncertainties by U.S. presidential election. Investors should remain focused on their long-term goals and remain well diversified to help dampen volatility and find pockets of strength in the slow-growth market environment.

 

The opinions expressed above should not be construed as investment advice. This letter is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this blog post should be interpreted to state or imply that past results are an indication of future performance.

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EQM Capital LLC – Quarterly Market Commentary for 2Q 2016 – When Money and Politics Collide

Posted by on Jul 7, 2016 in EQM Capital Blog

Politics and money puzzle pieces representing the corruption of wealth in elections

Market Recap for 2Q 2016

Despite the dramatic sell-off that occurred after the unexpected vote by Britain to exit the European Union, U.S. markets staged an impressive rally at month-end, climbing back into positive territory for the quarter. Small caps stock led the way with the largest gains for second quarter as the Russell 2000 Index advanced 3.8%. Large cap stocks also gained during the quarter with the S&P 500 Index up 2.5%. Only the tech-heavy NASDAQ lost 0.2%. It still trails significantly for the year, down 2.7% YTD through June.

Although the market experienced a post-Brexit rally by month end, growing political risk, both abroad and at home still weighs heavily on the financial markets. Slowing expectation for economic growth, Fed action uncertainty, and the headwind of a strong U.S. dollar remains a concern. According to FactSet, analysts are expecting a 5.2% decline in corporate earnings in the second quarter.

Developed international markets fared far worse than U.S. markets in the second quarter. The MSCI EAFE Index declined 2.6%. Emerging Markets performed slightly better with the MSCI Emerging Markets Index declining only 0.3%.

Thanks to the prolonged global environment of low interest rates, the bond market and other income-producing assets continue to perform well. The Barclays Aggregate Bond Index rose 2.2% for the quarter. Dividend paying stocks like REITs and Utilities have also outperformed as investors continue to be willing to “pay-up” for income. Commodity assets such as precious metals have also risen as a hedge for many deflating currencies, ending their 5-year streak of declines.

Domestic Economy Plugs Along …

News about the domestic economy was mostly positive during the quarter, with strong housing and consumer data offsetting a worrying decline in job creation. First quarter gross domestic product (GDP) growth was also revised upward to 1.1%. Although the May jobs report disappointed, consumer confidence increased to its highest level since last October and personal spending continued to increase.

Housing was also a boost to the economy during the quarter. Existing home sales exceeded initial estimates and a 2.4% YOY increase in pending home sales also indicated continued growth in the housing sector, helped by low mortgage interest rates.

 … While the International Outlook Remains Murky

Negative global headlines remained an overhang in Q2, with the unexpected Brexit vote in particular disrupting equity markets at the end of quarter. Although the referendum result creates many future uncertainties for Europe, the long-term impact on the U.S. economy will likely be minimal. In Asia, China’s growth continues to disappoint. To counter the slowdown, China has been devaluing the yuan, leaving the currency at its lowest level relative to the U.S. dollar since December 2010. And in Japan, the efficacy of Abenomics has come under more and more scrutiny.

The Rise of Political Risk

The recent Brexit vote was not only a lesson in the power of the people, but also in the rise of political risk as an important factor impacting the financial markets. Whereas previously the central banks were “running the show”, politics and fiscal policy are gaining greater prominence. Some of the lessons learned from the Brexit vote are as follows:

  • Political outcomes are much more difficult for markets to predict. People can and will act counter to their economic self-interest if it supports their other agendas. This is one of the economic risks of direct democracy.
  • Globalization and localization are loggerheads. People are conflicted about the impact of globalization and its threat to their local and national identities.
  • Central banks are running out of ammunition. After resorting to negative interest rates to stimulate the weak economy, central banks are running out of tools. Fiscal policy and initiatives could fill this void, but that requires political action and leadership.
  • Slow growth has exacerbated the wealth gap and seeded discontent. The tepid economic recovery experienced post the Financial Crisis has failed to lift all boats. Many workers have been displaced and “left behind”, creating anger and dissatisfaction with the political establishment and status quo.
  • Investors who did not panic were rewarded. Calmer heads prevailed and investors who stayed their ground and did not panic in the face of Brexit uncertainty were handsomely rewarded.

Despite the fact that financial markets have rallied and shrugged off the Brexit vote, there are many uncertainties that remain that could impact markets and spur heightened volatility going forward. But we continue to believe that investors should remain focused on their long-term goals and not allow their investment plans to be disrupted or derailed by external forces.

So continue to “Stay calm, and carry on.”

The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this post should be interpreted to state or imply that past results are an indication of future performance.

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EQM Capital LLC Blog – Sell in May, or Stay and Play?

Posted by on May 7, 2016 in EQM Capital Blog

Although the old adage worked last year, it doesn’t have a great track record.

 

After falling 11% in the first six weeks of the year, stocks have bounced back, albeit as a slower pace. In the six weeks following the February 11th bottom, the S&P 500 gained 11%. In the five weeks that followed it rose 1.4% and through the end of April were only off about 3% from the highs set last May.

A recovery in oil prices, better economic readings, and some more positive data points from overseas, all helped spur the market recovery. Now we enter the month of May when the old adage advises stock investors to “sell in May and go away.”

Since 1970, according to Credit Suisse, the S&P 500 has gained an average of 1% in the period between Memorial Day and Labor Day. When stocks rose over that period, they gained an average of 5.6% and when they declined, they lost an average of 8%. While trading volumes do tend to be lower in the summer as investors and traders take vacations, history doesn’t really support the rhyme.

cruel-summer-large-725x785

Last year the strategy would have worked.  An investor who sold the S&P 500 on the Friday before Memorial Day and repurchased the Index the Tuesday after Labor Day would have avoided a 7.4% decline.

But what about this year?

The summer will start off with some potentially market-moving events. The next Fed meeting is scheduled for June, although they appear unlikely to take rate action given April’s meager job readings. Later in the month, the UK will vote whether to remain a member of the EU. July will bring another batch of corporate earnings reports, which may continue to be mixed. There are political uncertainties surrounding the Presidential election. And more potential “gotchas” coming from Europe and Asia. But all things considered, we continue to believe that diversification and a long-term focus will ultimately be rewarded.

So don’t go away in May, stay and play, and remain focused on your long-term investment goals!

The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this post should be interpreted to state or imply that past results are an indication of future performance.

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