Market Commentary: 3rd Quarter 2016
By: Lisa Thuer - Senior Trading and Research Specialist
The fourth quarter is upon us and where do we go from here. 2016 started out with one of the most volatile Januaries in history only to be led by an upward climb in February and March. June ended with the whipsaw of Brexit. Not to mention the Federal Reserve indecision of raising interest rates or not. If all of that isnâ€™t enough, let us bring an unconventional Presidential Election into the mix.
Putting all of the noise aside, the economy is growing. Perhaps not at leaps and bounds, but it is growing and slow growth keeps inflation intact. The unemployment rate is low and wages are rising, slowly. Home and auto sales are good. Consumer confidence is up which is a positive sign that people feel things are improving. Oil has come off its lows and the dollar has come off its highs giving both of them some stability.
How does all this relate to your portfolios? Our job becomes challenging at times when the markets do not trade on fundamentals. In the long run, fundamentals do win out. However, short-term it makes it quite difficult to tune out the noise and look to the long-term goals and know that your timeline may be extended to reach these goals. Depending on your age, this timeline may be shorter or longer for each individual. Emotions do get in the way of money and investing, however this year has taught us that the markets are resilient and can weather many storms even when stuck in the eye of the hurricane you cannot see the light of day.
Sorting through whom to believe in all of this â€“ so far the media has put nothing but fear and panic into our heads. We have made several adjustments to many portfolios over the past couple of weeks and a few more will continue but no major changes. Earning season is upon us and we are looking for a positive one. Should there be some misses in earnings, we may experience some volatility. The Presidential Election is just a few weeks away which may also cause a stir in the markets. Investment wise we are erroring on the cautious side and staying with U.S. dividend payers. Unfortunately, healthcare has been a drag on our portfolios, but we believe it has bottomed and healthcare innovations are nothing but a positive story in the works. Merger and acquisitions are materializing, the biotech space is increasing with clinical trials, medical innovations and many more are all taking place. There may be some pullback in this sector depending on the elections since there are different views on healthcare from both candidates. However we will remain invested and perhaps increase our allocation to the healthcare sector. Technology remains in focus and we will continue to hold and look for areas of further interest. Some other areas of allocation will be an increase small-caps, a watch is on for the energy sector and for the conservative income portfolios we will add bond like or equivalent bond like holdings. Global and International holdings are always in our research, but at this time we remain with a very small international holding due to the volatility that currently comes with investing internationally.
With the election upon us in the 4th quarter, some unknowns remain in the market since this election is like no other. However, the market has withstood many storms and this is just one more. Keep in mind, the markets have never seen anything like Brexit before and look at the markets now. We continue to build a solid and well-diversified portfolio with your short and long-term goals in focus.
As always, should you have any questions or concerns, please feel free to contact any one of us on the KFA Team.