Spring Newsletter: Quarterly Update

“May you live in interesting times,” is supposedly a Chinese curse. Whether that is true or not, boy are we living during interesting times! Between the economy, the markets, and the election we seem to not only be living in interesting times, but frustrating ones as well.

The Economy

After a “stronger than expected” 1.4% gain in the 4th quarter, Gross Domestic Product seems to be coming to a stall in the 1st Quarter. The Federal Reserve Bank of Atlanta as of March 28th estimates 1Q GDP to be just 0.6%. Combine this with manufacturing being in contraction since October and the service sector slowing significantly (although still growing), pitiful industrial production, and declining corporate profits, you get a murkier picture than we would like. Our current estimate of recession in the next six months is at 40-50%.

The Markets

The US stock market had its worst start of the year decline ever through February 11th. According to wsj.com, while US major indices such as the S&P 500 fell about 11%, 60% of all stocks were down 20% from their peak in 2015. Small caps and the overall global market entered a “bear market” as markets dropped at least 20%. Markets since then have staged a furious rally bringing US stocks into positive territory as we close out the quarter. This has many saying the worst is over. In my opinion, while this may be true and we may be heading for more gains, the overall technical pattern of the market is more reminiscent of a sharp rally in the middle of bear market. As a reminder, the S&P 500 peaked in October 2007 and then dropped 19% through March of 2008. The market then staged an 11% rally through May before beginning the steep drops in the Fall (data from wsj.com). While all markets are different, this one seems to be behaving in a very similar fashion.

The Portfolios

Our WealthProtect System* triggers caused many of our portfolios to enter 2016 in a very conservative position. We continue to believe that relative safety is very important here, but that opportunity may soon arise in several depressed asset classes. This may have many of you praying, “God please grant me patience, and I need it now!” Times of transition can be very frustrating and trying on the nerves. Sometimes we just want to do something—anything—to get some decent returns. Sometimes what we need is patience to allow a strategy to work towards its objectives, and to avoid big mistakes. I struggle with patience too; so believe me I understand.

The Firm

Emily is to be congratulated for passing the very difficult Series 7 and 66 exams allowing her to become a registered administrative assistant. This will further improve our capabilities to serve you.In addition to Lighthouse Ministries as our major charitable cause, we have become the title sponsor for the Pacing for the Pieces Race for Autism Research and Support. The race was on March 12th this year and the turnout was great. Both Lee Carter and I have children with autism and appreciate the Pennington family for spearheading this organization. Thank you for your continued trust.