What is happening in the stock market?
We currently observe weakening economic conditions and slowing corporate earnings growth combined with elevated equity valuations. With the odds of the U.S. economy slipping into recession increasing and heightened levels of geopolitical risk, we believe it is prudent to focus on capital preservation, reduce portfolio risk, and maintain a conservative bias. Periods of market volatility create opportunities to “buy low” as stocks go on sale. By reducing risk and “keeping some powder dry”, we strive to limit the impact from potential market weakness while preparing for selective additions as we identify attractive risk/reward candidates.
Where can I make money?
This past year proved to be a really tough year to make money in the markets as a majority of asset class returns disappointed. Besides U.S. large company stocks, almost every other asset class fell in 2015. Significant declines in energy, emerging markets, and commodities created a challenging environment for broadly diversified portfolios. Setbacks in mid-size company, small company, and international stocks, combined with meager bond market returns, only added to the dismal results that left the Morningstar objective-based benchmarks (conservative, balanced, moderate, or aggressive) each down 2-3% for the year. The minimal amount of gains available within the investment universe in 2015 made it the worst year for finding returns since 1937, when the cash-like 3-month Treasury bill beat out other major asset classes with a meager return of just 0.3%.
What is our investment outlook?
We currently observe weakening economic conditions and slowing corporate earnings growth combined with elevated equity valuations. With the odds of the U.S. economy slipping into recession increasing and heightened levels of geopolitical risk, we believe it is prudent to focus on capital preservation, reduce portfolio risk, and maintain a conservative bias. Periods of market volatility create opportunities to “buy low” as stocks go on sale. By reducing risk and “keeping some powder dry”, we strive to limit the impact from potential market weakness while preparing for selective additions as we identify attractive risk/reward candidates.
