By: Lisa Thuer - Senior Trading and Research Specialist
The dust is still settling in Washington as the new administration takes office. The markets started like gangbusters in January and February, which was based on the upbeat news that a Donald Trump presidency would result in pro-growth policy changes, which is good for the stock market and businesses as well. However, in March the markets hit the brakes when the new Healthcare Bill failed to be brought to vote. This is being viewed as, perhaps the Trump administration will not be able to get all their policies and their campaign promises passed as quickly as anticipated. Failure of the Healthcare Bill, contributed to the March stock market being a relatively flat month.
Letís review the positives that we saw in the first quarter of 2017. The technology sector was a top performer, and we were pleased that we made the decision to add to our current positions in this sector at the end of 2016. Other areas that have done well are consumer discretionary, staples, and utilities. The financial and industrial sectors continue to hold their own, as decrease in regulations will benefit the financials and infrastructure spending will be beneficial to the industrial sector. The worst performers were energy and telecommunications. However, we are underweighted in those two sectors, but our minimal exposure in those sectors are holdings that have a significant dividend yield. Small companies have had some mixed results this quarter but the forecasted future is still pro- growth. Fixed income continues to show mixed results, nonetheless we continue to hold investments in the fixed income sector that are non-traditional, income generating holdings.
Any pullback in the markets that we have seen recently can be viewed as a pause in the markets, because bull markets often take a breather. As much as we would all love to see the markets continue to go up, we also know it is not realistic. Investing on political noise at home and abroad can be detrimental to a portfolio. We know that there are many good things happening here in the U.S., Technology innovations, medical breakthroughs, and oil production, just to name a few, but the good tends to be overshadowed by all the noise in Washington. As we have mentioned before, the media tends to focus on the negatives.
There will come a time in the future for us to start dabbling in investments outside of the U.S. as we continue to watch and monitor other areas of the world. For the last several years, we have been reluctant to any foreign investment because of their uncertainty.
Our outlook continues to be relatively optimistic, especially if Washington can put some of this political gridlock aside and focus on getting something done. It would be positive if we could see some, Tax Reform, the easing of some regulations, as well as some type of Healthcare Reform, and it would be best if it came sooner rather than later. Good things are already happening with a pickup in business as well as consumer confidence, along with job creation and wage increases. Regardless of what happens in Washington D.C., companies will continue to innovate and produce, life will not come to an end.
As always, should you have any questions, comments or life changing events that you need assistance with, do not hesitate to contact one of the KFA team members. It is always good to review your own risk tolerance that may change overtime. Are you able to weather the markets ups and downs and focus on your goals? Letís talk about it, please give us a call, Mike Kabarec has been doing this for 35 years. He has seen lots of different markets through his career, he might not have all the answers, but he does have a lot of answers.
By: Lisa Thuer - Senior Trading and Research Specialist
The year 2016 started out by taking the polar plunge.
China came out with disappointing manufacturing data, sending all markets on a free fall. Analysts and economists reports stated slower earnings and economic growth. The Federal Reserve, after raising rates a quarter point in December refrained from raising interest rates a second time, stating that the economy was too fragile. Yet they were calling for 2-3 rate hikes in 2016, but they only raised rates once. Early in the year markets rapidly dropped day after day, at the same time, oil hit a low of $26 per barrel. Were we on the brink of a recession?
Then in February the whipsaw came; new data stated a recession was less likely than feared and the markets rebounded, however not all sectors participated. Healthcare and FANG (Facebook, Amazon, Netflix, andGoogle) stocks were not taking part in the rally, yet utilities and telecom were skyrocketing. There was a flight to safety and value on the forefront.
All was going well until the next big uncertainty hit the market – Brexit! The markets were rattled leading up to Brexit. As the election was nearing the polls were stating that the U.K. would remain in the Eurozone. The markets reacted positively, but then the votes were tallied, and we soon learned that the polls were wrong. The U.K. voted to leave the Eurozone; the markets were shocked and once again plunged. Financials took a beating and the Federal Reserve decided not to raise interest rates at that point and furthermore no rate hike was insight. We were in uncharted territory and everyone was predicting we are on the brink of a disaster. Once again, this wiped out all of the market gains. After some digesting, all wasn't as bad as first stated, and the market hit the road running, we were upward once again.
As if all this news wasn’t enough for the markets to digest, America was in a very unusual presidential election year. A New York Business Man running against a Woman, with political experience. But there is no need to go into details about that, as we all know the outcome. Everybody we talked to could not wait for the election to finally be over. But, once again the polls had it wrong, which again sent the markets into a tailspin. As the market did a complete turnaround and climbed to new highs. Based on optimism, equity markets climbed as the bond prices fell. KFA was feeling a little overdone in both areas and we wanted to let the markets settle down just a bit before jumping back in with both feet.
2016 is now behind us and as we reflect on our portfolios, not only did the economists predict incorrectly, so did some analysts, but we at KFA, also erred on the conservative side. Financials tanked after Brexit in the uncertainty of how banks would be affected by the change. But after the US election of Donald Trump –so far financials have been leading the way. Healthcare stocks took a beating for most of 2016, but since the election we are starting to see some recovery in that sector also. We can’t help but wonder; had Hillary Clinton won… would we be seeing the same results, she made it clear that she was very much against Drug Company’s price gouging. We are not saying that Trump isn’t against price gouging; he just took a different approach on the subject.
In an effort to keep risk out of our clients’ portfolios, it may have kept us from partaking in some of the upside of the market recovery. However we feel that this is a small price to pay for what could have turned in a different direction. We had certain situations that did go south last year, and we wanted to do what we could to make sure that our clients were protected. Even the best of economists and analysts had a hard time forecasting last year, and some were just down right wrong. It was definitely an unusual time. We are seeing that the portfolios which benefited most last year are the ones that did nothing from start to finish and just rode the markets ups and downs.
2017 is now upon us, and this January in comparison to last January, we are seeing a reversal in the markets, we are also seeing green lights ahead. Some areas of interest to KFA are Aerospace, Defense, and Financials (in particular regional and smaller banks). Along with Information Technology (IT), Infrastructure and Small Companies ,while holding on to our Large Cap Dividend payers, which will benefit investors if the overseas earnings are repatriated, bringing offshore monies back to the U.S.
We continue to look for preservation of capital and yield as our conservative portfolios continue to hold a larger portion of their portfolios in these areas. Alternatives and Market Neutral holdings continue to be a part of our portfolio to keep a balance to the uncertainty that always faces us. Bonds and bond funds are known to be less volatile- however as of late even they have seen more volatility than normal.
If only we had a crystal ball to help us predict the future, life would be so much easier. But for now,
we need to go by research, and sometimes even gut feelings, and the knowledge that we need to make money for our clients while we are protecting them from markets down falls.
With the start of a New Year, please consider that this is a good time for clients to review your portfolio risk tolerance. Have you had any life changing events last year or an upcoming event that you know about that has changed or may change your needs? Whichever it may be, the start of the year is always a good time to revisit your risk tolerance.
If you would like to come in, or have a telephone conference with a KFA team member, please feel free to contact us, we love hearing from our clients. KFA will work with you to make the necessary risk adjustments to your portfolio. As always, we thank you for your confidence in us and we look forward to 2017 being a great year!
Things we can cheer about: the Election is over and the Cubs did win the World Series, so now let’s move forward. Post-Election, the market has seen some strength with some sectors preforming better than others. The bond market has reacted with rising bond rates. KFA has been analyzing and processing all the different aspects of the election and what it means for our portfolios. Obviously the election had gone a different direction than most had expected it to go. Therefore, there will be adjustments made to our portfolios. The economy is still doing okay and based on some assumptions it will do better in the foreseeable future. However we are expecting some kick up in volatility with the regime changes and therefore hope to take advantage at that point in time. It may seem cut and dry as to areas of investing but we have to look down the road as to how the change in policies will affect various sectors and industries.
Some of the assumptions we are basing investment decisions on are as follows:
- The Federal Reserve will most likely increase rates December.
- There will be some form of Tax Reform for individuals and corporations.
- Repatriation of corporate earnings/Tax Holiday which means bringing money back into our country which will benefit shareholders and also hopefully create jobs in the U.S. also.
- Inflation will likely occur.
- GDP should tick upward.
- There should be a better business climate with possible Dodd-Frank reform which means less regulation but in a good way.
- Infrastructure spending which will create jobs and improve our roads and bridges to name a few.
- Some sort of Healthcare reform will take place.
- The dollar has gotten stronger and will likely remain strong.
- Bond pricing has gone down and yields have gone up.
Some of the stock price run up has been quick and rapid (overbought) and the bond pricing also has gone the opposite way also quick and rapid (oversold). Taking a step back and letting it settle down, we will be adding to positions in the areas that will benefit from these assumptions. In these upcoming days based on the market movement, we will be adding to Financials, Healthcare, Materials and Technology sectors which are on the forefront.
Should you have any questions, please do not hesitate to call one of our KFA Team Members.
We have all just witnessed a historic election that may forever change politics, as we know it, in this great country. It is still very early to know how all the pieces will be picked up by supporters of candidates on both sides as we learn to once again come together after supporting a favorite candidate. As is always the case, no matter the outcome, we have to come together to move our economy and country forward so that all Americans can benefit in spite of our individual opinions or beliefs.
This election has truly been historic due to a difference in the path to winning office. History shows there are things you typically do to get elected, but Donald Trump showed that without large financial backing and party support that is common he was able to win the election. For these reasons this election was historic.
As we have been reading and digesting plans put forth by Donald Trump during the campaign we do know there are areas that should benefit such as infrastructure and defense. As with any campaign there are many things said or promised that we may not be able to count on actually coming to fruition. As some have suggested, we really have an Independent as President with a Republican Congress. Will this create a balance of power that seems less obvious today? It is going to take time to see what actions become reality.
Aside from the large stock market futures drop during the late but early hours of election results we are not seeing a massive sell-off that some expected. We do expect to see continued volatility over the coming weeks. Investment choices may change slightly dependent on policies put in place during the early days of office which we will await.
We believe your portfolios are invested to weather a short and long term horizon. We feel any changes made may only be to increase or decrease an allocation to a specific sector. Prior to the election we worked to position portfolios for any outcome.
We hope for the benefit of all Americans that those elected into office will serve in our best interest and will truly take their elected office seriously. We will continue to watch and listen for any changes we feel may change your investment portfolios and will act as necessary, if so.
We thank you for your continued support and encouragement.
Kabarec Financial Advisors
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 isn’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 – 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.