The third quarter of 2016 was interesting in part because of the positive signs seen across the board, but also because the earnings expectations were initially low. Being that earnings are what the market actually trades on, the earnings reports were very important to watch. Despite the forecasting, the majority beat the bar set and we saw the stock market rise. Understanding this is fairly simple: when a company does a well its value grows, in turn increasing the value of its equity shares. This fact has been slightly clouded by previous unfortunate news.
Although we saw good signs in Q3, it wouldn’t be smart to expect a fully smooth road leading into the year’s end. We have a situation of extremely slow global growth, unclear next moves from the Federal Reserve, and a wildly volatile presidential election cycle that is coming to a close. The latter providing a new president serving as the only true guarantee.
Listed below are returns of five major indexes, through the third quarter;
BarCap US Agg Bond -- 5.80%
S&P 500 -- 7.84%
Russell 2000 -- 11.46%
MSCI EAFE (Europe) -- 1.73%
MSCI EM (Emerging Markets) -- 16.02%
In the third quarter, all five of our portfolio added measurable performance, with the Technology, Emerging Markets, and domestic Small Cap stock positions doing the best. We can expect some solid returns from our Energy allocations as well, but as oil prices near $55/barrel, we’ll likely look to trim this area. Another segment of great interest is High Yield fixed income, as we think it’s an opportunity to gain profits and search for higher value. Additionally, Apple jumped 19% within the S&P 500, meaning our individual positions are back on track.
With the election cycle coming to a close, and with the implications of Brexit still unclear, we can expect some future volatility. Still, we see Q4 being overall positive for stock. Tech, Emerging Markets, Small Cap Stocks, and Energy all hold the highest favor. Financials look increasingly of desire as interest rates being to rise, as we think they’ll see the most benefit from that. That being said, by the same observation, we’ll reduce emphasis in interest rate sensitive fields such as bonds, Utilities, and Real Estate Investment Trusts (REITs).
We deeply appreciate your continued support and trust in us, and are always available to contact directly for help.