Since election day, all eyes have been on the stock market in anticipation of what the new administration may bring. In addition, the yield curve has clearly shifted up in anticipation of a potential December interest rate increase. Listen to SH&J’s discussion on the current state of the U.S. economy and the impact of international quantitative easing policies on the dollar.
Volatility is increasing in the U.S. markets making it more difficult to determine what direction your investments should take in 2015. When Oil slid from $100 to $50/barrel, the U.S. stock market rallied in anticipation that lower gasoline prices would allow consumers to spend this windfall somewhere more interesting than the pump, but that hasn’t happened yet. So far, all we’ve seen are layoffs in the oil patch and more price swings in the S&P 500. Europe is justifiably concerned about Greece and its willingness to resolve its debt crises. They keep talking and positioning as well as negotiating via the media with the Germans, but nothing significant has happened yet. So far this year, international markets have had some gains even slightly more than the U.S., but the structural problems outside the U.S. make us remain cautious. Over the past 6 years, the best place to invest your money has been the S&P 500. This index is likely a bit overvalued right now, and perhaps the international markets are a bit undervalued, but no one knows when the trend will change. It appears that the U.S. dollar will maintain the dominant currency for the foreseeable future making our exports more expensive. This does however, allow foreign companies to increase their sales to the U.S., likely making them more profitable. The U.S. has seen substantial job growth but minimal wage growth over the past year, which is encouraging news for corporate profits. We have yet to see consumer spending rebound to its pre great recession levels, but as more people get reemployed and old debts are repaid, the outlook for the U.S. appears to be the brightest around. How does this translate into your portfolio design? A large part of your portfolio will remain invested in the U.S. with some allocations hedged to the U.S. dollar in International stocks and bonds. Bond positions will remain primarily in U.S. corporations with some international exposure, but the U.S. looks like the place to be right now.
Sharkey, Howes & Javer is a Denver-based financial planning and investment management firm. For additional market updates and financial news, please follow our LinkedIn page. If you are interested in setting up a complimentary consultation with one of our Certified Financial Planners™, please call 303.639.5100 or visit shwj.com.
In our quarterly reports to clients, we always include commentary on the markets, economy and other financially relevant information. Our 2014 Q4 reports recently went out, and we wanted to share our commentary with you as well. We would also love to hear your questions and comments in the comments section below.
New Year’s Resolution – “Do More of What Makes You Happy”
We think that would be a good resolution. However, focusing on the financial markets around the world will rarely help! The Media elicits emotions that cause lots of dissatisfaction and fear.
In 2014, for example, few categories did as well as big blue chip American companies. The S&P 500 index did great, so now the news is full of advice about how you “should” have invested! Of course with us, you DID invest in the S&P 500 – and your diversified portfolio also invested in bonds and other assets worldwide. Remember 1987, 2000, and 2008 when the S&P 500 was, as the pundits later agreed, the one place to avoid investing in – EVER AGAIN! (Source)
Our society seems to love being unhappy about markets! “Are they going to correct?” Yes – we just don’t know which ones, when, and how badly. “Did we miss out on the ‘best performance of the year/decade/century?” “Which asset class was the one we should have exclusively chosen?”
If you had thought that the S&P 500 was the best place to be in 2014, think again. The top performing market of 2014 was China (up 44%)! Who would have guessed?!
We saw a fascinating report from the Medical Media about that other perennial New Year’s resolution – wanting to lose weight. There exist as many, if not more, diets as there are sure fire ways to “beat the market”. The American Medical Association threw up its hands and opined that although all diets may work, the only one certain to do so is “the one the patient will stick with!” We think that makes a lot of sense, and we try hard to design investment portfolios that “the client can stick with.”
2015 will probably be the year the Federal Reserve raises interest rates – very carefully (Source). We expect that our US bonds and stocks will weather the change well, despite turbulence and dire headlines.