After a very quiet first half of the year, volatility came back with a vengeance in August and September.
The economy continues to plod along at around a 2% clip. The economy and employment backdrop were apparently strong enough to allow the Federal Reserve to raise interest rates by a quarter point in December. There are some troubling signs for 2016, however. A number of leading and coincident indicators are pointing to greater weakness, raising the specter of recession. For now, though, the jury is still out.
If you measure markets by the Dow Jones Industrial Average or the S&P 500, the year was pretty uneventful. It was flat the first half of the year, and then fairly volatile with those two averages being a little down as of 12/18/15. But if you look beyond these averages, you get a different picture. The Russell 2000 is down 7%, the NYSE Composite is down 8%, and the Dow Jones Transportation Average is down 19%! And that is just the US. The carnage is much worse elsewhere. As we enter 2016 the US stock market by almost every measure remains severely overvalued and market action of the past few months is more typical of a market top than a simple pullback.
Diversification continued to hurt portfolios as fewer and fewer stocks did well and most of those were concentrated in US large caps. This has caused many to question the wisdom of diversification. All I can say is that these thoughts are also typical of a top in a market. Unless the nature of people and markets has changed, we believe the benefits of a well-diversified portfolio will be seen soon enough. For our advisory accounts with which we employ our WealthProtect System, the benefits have been more obvious. For example, since we exited the commodities sector on 8/14/14 the Bloomberg Commodity Index is down over 40% through 12/18/15. I am very optimistic that the combination of a well-diversified portfolio and our WealthProtect System will provide us with future investment opportunities.
The biggest development in our firm was Matt Ridenhour becoming a partner. You can read more about this on the next page.
On a personal note, I have to thank my associates for the great job they have done this year in handling things when I was unavailable. My wife, as many of you know, has had several medical issues this year, culminating in early December with a fall that resulted in her fracturing her skull. A hematoma required a craniotomy, and there were also some sodium balance complications. I appreciate all the prayers, as well as the expertise of everyone at Florence Neurosurgery & Spine and McLeod Hospital.
Thank you for your continued trust. Let's all have a better 2016.