Q3 2016 – Market Summary

This January was a horrible month for stocks, we undercut the lows from August of 2015 when markets dropped 10% in 5 straight days. The media made a big deal of the January loss citing historic episodes where a down January portended a bad total year.

Well, it’s turning out to be a pretty good year. Our emerging markets fund is up over 17% after looking like it might fall off a cliff in January. Our small value fund is up over 11% (Up 7.51% last quarter. July was a very good month.).

Most everything we use that invests in U.S. stocks is beating a market centric basket of large stocks (S&P 500 – up 6.37%). We’ve been working through an extended period where the highest potential returning stocks have been underperforming and now, like has happened since the beginning of the stock market, we’re getting paid for owning these stocks. We’ve got a bit to go with respect to being paid the historical premium when looking at 10 year averages. You don’t know when you’re going to get paid, and exactly how much, but looking at the past the longer one has owned these types of stocks the greater the odds of realizing the expected benefits.

U.S. markets brushed off Brexit in a few short days but stocks in developed markets outside the U.S. are behind (small value up 4.77% and core our fund up 3.50%).

A few years ago there was a lot of concern and predictions interest rates would rise but that has yet to happen. Like our core stock funds all of our bond funds are making money this year (up between 1.63% and 6.81%). Unemployment is arguably low, although millions have chosen to leave the workforce, and inflation is contained although occasionally showing signs of picking up. The Fed is stuck wanting to raise rates but not really having the need to do so.

Looking forward our wealth would likely benefit from a change in trend to federal government spending. Our debt as a percentage of gross domestic product (104%) is now only behind Japan’s when comparing the biggest economies. The bigger our debt the greater the percentage of tax receipts dedicated to paying interest. Tax receipts as a % of GDP dropped below historical averages after 2008 causing massive debt accumulation. We’re now very close to historical averages with respect to taxes collected relative to production but there’s no plan to slow spending and the debt is thus expected to keep rising.

Brexit is partly about eschewing bureaucracy and enhancing choice. More of that would likely help the global economy turn the corner toward stronger growth.

As always, I truly appreciate the confidence you’ve place in us with your assets and I want you to feel free to call at any time regarding your portfolio or any personal financial matter.

Sincerely,

Erik S. Wolfers, MBA, CFP^®