KFA Blog

Market Conditions - Mr. Wonderful to Mr. Doom and Gloom

By:  Lisa Thuer - Senior Trading and Research Specialist

January 2016 will go down as one of the worst if not THE worst January since 1937. It began down and continued free falling with a few positive days in between to end the final trading day of January 2016 with the Dow up nearly 400 points. We feel like we have been bungee jumping for the past month. Ending the month on a positive note going into the weekend is always an added bonus.
Let’s take a look back and see what happened and what is going on in the bear and bull camps. In the past several weeks, we have attended conferences and luncheons with the best analysts around the country to hear their perspective on the markets and where to go from here, including Kevin O’Leary from Shark Tank to Mark Faber, publisher of Gloom Boom & Doom Report. Unfortunately they are divided in their ways of thinking.
 
Bear Camp: Mark Yusko from Morgan Creek and Jeffrey Gundlach from Doubleline Capital are calling for a recession based on weakness in the manufacturing sector. They claim the Federal Reserve will lead us into a recession by raising rates. Then there is the surplus of oil which even though it is a positive for some of us, it is negatively effecting certain areas of the country such as, Houston and North Dakota. The slowdown in China with other countries exporting goods to China will reduce their bottom line. The strong dollar also making our exports expensive and impacting corporate profits to the downside.
 
Bull Camp: Professor Jeremy Siegel of WisdomTree and Liz Ann Sonders, Charles Schwab’s Chief Investment Strategist are cautiously optimistic. We had the honor of listening to them speak this past week. You could say that our views relate more to them than the Bear Camp. Professor Siegel believes that oil should stabilize around $40 and chances are the Fed will not raise rates anymore this year. Both Professor Siegel Liz Ann are basically in the same cautious bull camp and believe we will have a positive finish in 2016. All the worry on China but U.S. has small exposure to the country. Whenever the Fed raises rates, volatility becomes the norm. Slowly raising rates is good for the markets as long as it is not too fast. We may be approaching a mature bull market and realistic returns will be in the single digits.
 
KFA Camp: We also are cautiously optimistic. How is this reflected in your portfolio. KFA is not market timers. Sure it would be great to be able to always buy low sell high and be in all cash when the market drops. We have taken risk off the table and based on research and fundamentals. There is not always a clear signal to sell when the floor is dropping out and consumer sentiment is negative when in reality the data isn’t bad. So what are we doing? Alternatives have been added as a portfolio stabilizer, utilities and preferred stocks have been added to lower the volatility and receive a dividend yield of 3.5% and 5.5%, respectively. We remain overweight in healthcare, technology and financials, even though they did have a big draw down in January, they remain sound investments and this is where the future of innovation will prevail. Furthermore, we will continue to add quality dividend holdings to your portfolio. KFA has chosen not to panic and listen to only our trusted sources of research. There are opportunities in the market and we are looking for signs of stability and have begun to nibble at the markets.
Continue reading
1416 Hits

Market Conditions - Making the Shots

 

The east coast is preparing for a blizzard and folks in Georgia have closed half of the state down as the possibility for snow grows larger. Across the deep south, Winn Dixie aisles are emptying as bread and milk leave the shelves and 30 inches of snowfall is possible in Washington D.C. As our friends and family on the east coast and in the deep south brace for impact, we are preparing for a potential market rebound. After a hard bounce down in the market this week, we have finished almost where we started on Monday.

The sun shined through on the market today as oil found some balance and corporate earnings were generally positive. The biggest driver toward the end of this week was investor sentiment. As it turned out, the hoopla of gloom and doom by talking media heads faded as strong earnings results by Verizon, Starbucks, and several airlines calmed fears amongst investors. European markets aided a dismal international scene by bouncing back from a similar volatile week experienced in US markets. At noon on Wednesday a noted technical analyst, Joe Barto, stated that if the S&P 500 closed below 1810 points equities would free fall from that level. The S&P 500 tested bottom at 1810 points before rising to close this week at 1906.

Emotional fear and panic are not investment strategies. We are conscious of continued volatility but our resolve and our convictions in investments made in your portfolio remain strong. Global growth continues to be a chief concern amongst commodities and Fed policy. This month has seen market excess subside which could make our next bounce even more remarkable. While thinking about the game of basketball, imagine a hard bounce pass headed in your direction for an easy layup. Do you sell everything and drop the ball or do you make the shot? This scenario is similar to understanding market dips, the market has always dipped and history has shown it can come back up to reach never before seen levels. The perceived problem is only an opportunity for KFA investors as we aim to make the shots and help you reach your financial goals.

In 2016, expect volatility and a change in pace as we experience a season of adjustment. A new president is set to be elected, China must find solutions to alleviate multiple economic problems, and commodities are looking to find stability. We are left with a plethora of questions which markets, companies, and countries must answer. These challenges present themselves as opportunities for your investment team at KFA. We are always researching and developing ways to keep your portfolio protected and poised for growth.

Our sincere thoughts, prayers, and well-wishes go out to our extended family on the east coast and in the deep south.

 

 

Continue reading
1473 Hits

Market Conditions - Investing with Wisdom

 

Negative economic forecasts continue to pour in from every angle. A week ago, the Royal Bank of Scotland advised investors to sell all stocks and yesterday a CNN pundit broadcasted the coming of a bull market. In the words of Warren Buffett, “the only value of stock forecasters is to make fortune-tellers look good.” Take into consideration the weather in Chicago when attempting to forecast market performance. On December 13th Chicagoans experienced a high of 64 degrees and on this past Monday our high felt like -2 degrees with wind chill. In only a matter of weeks, we experienced a 66 degree shock. Our market system is experiencing a similar negative shock from an oil crash and a Chinese market that remains fundamentally unsound.

This is not a time of catastrophe but a rare moment of opportunity.  When we experience a negative setback in life, such as an illness or an injury, we seek the best medical advice because we are looking to alleviate a problem. The same can be said in regards to your finances, if you see a negative return on any portfolio you immediately tune into the media to see what is happening in the market. Talking heads across the world are not employed to take care of your finances or forecast anything with accuracy. Their employment often stems from feeding off of your emotion and selling you a story. KFA is not interested in buying stories; our sole purpose remains in helping you achieve your financial goals.

In the midst of a supposed catastrophe, KFA seized an opportunity and most portfolios added a shock absorber and a commodities driven fund last week. Both of these alternatives are well into the green and helping maximize return in your portfolio. In the meantime, equities continue to be vastly undervalued as China and oil have captured the attention and focus of mainstream media. The international economic scene is looking a little better as India takes over for China as the fastest growing major economy in the world, its finance minister projects the GDP could grow as much as 9% next year. Oil prices may eventually stabilize as government officials in Iran have publically stated they would lay down their arms and collaborate with the Saudis in order to “fix” the price of oil. What does this mean for your portfolio? In market history there have always been sharp selloffs and remarkable rebounds.

As the snow melts into the spring we will be walking with an extra pep in our step as fundamentals outweigh an emotion driven market. Today the Dow Jones started down by over 500 points; however the Dow recovered 200+ points thanks to positive momentum in healthcare and small caps. We are reassured by an overall stable housing market, strong corporate profits, and an expanding American economy. As always, we are honored to be your financial advisors and we will continue to serve you with results driven by understanding and wisdom.

 

 

Continue reading
1408 Hits

Market Conditions - Keeping Pace

 

The market tumbled again today as day traders and gamblers alike woke up to an expiration date on the high risk business of options. More than 11 million options contracts were traded by noon as option traders faced two very difficult choices, to buy more expensive protection for their wagers or sell outright exposure to stocks. Both actions added selling pressure to a market already facing extreme fear from investors who are concerned with an oil crash and a mixed performance by the retail sector.

Oil continues to plummet which may force many domestic U.S producers out of business. Sanctions are set to be lifted on Iran this weekend which only accelerates a supply glut rocking the oil industry. Tehran and many others in the Middle East are desperate for cash but it seems Saudi Arabia is looking to bankrupt many small US oil producers and raise prices in the future. Job deceleration in many energy driven regions in the US has caused turmoil in housing markets such as Texas, the Dakotas, and Wyoming. These troubles combined with mismanagement in the retail sector have investors worried about today’s performance.

Executives at big box stores were unable to find a reliable meteorologist and blamed warm weather for another disappointing sales season as shelves were overly stocked with coats, hats and scarves. As consumers change the way they shop Macy's aims to cut jobs nationwide as sales continually disappoint. Walmart also announced that it will shut down 269 stores as people are buying from the comfort of home with a mouse instead of driving needless miles to deal with the masses. In changing times, it is critical for businesses and executives to keep pace. Netflix is poised to produce solid earnings and online retailers continue to profit on ever-changing consumer trends.  Fixed income funds, dividend payers, and high quality equities had our curiosity but now have our attention. Your portfolio has likely added two positions in a securities and income fund as well as a shock absorber fund to minimize risk and capitalize on growth. Our preferred Schwab securities fund has outperformed a volatile market while paying a dividend. We are also excited about our shock absorber fund that features commodities. This commodity driven fund has the potential to reduce overall portfolio risk and provide returns in a down market. The fund shown below has the ability to both capitalize on both rising and falling prices.

Part of our mission at KFA is to keep you informed and updated on market movement and your portfolio. Should you need any advice, guidance, insight or help please feel free to call us. We are always here to serve you and your portfolio. Thank you for your continued support. 

 

Continue reading
1379 Hits

Market Conditions - January 14, 2016 Update

By:  Lisa Thuer - Senior Trading and Research Specialist

We are sure that all of you know by now, the US stock market has started the New Year, with the worst performance in history.  Gloom and doom, is once again the rage on Wall Street and the fear mongers are out in full force, speaking on the radio and television.

One major international bank, The Royal Bank of Scotland, has made the bold call to sell “everything” based on world economic conditions. On the contrary, Morgan Stanley has stated that it remains optimistic and to “keep calm and carry on”.

What should we do as investors in the climate of uncertainty and volatility?

There are many unknowns as we head into 2016, such as potential Federal Reserve interest rate hikes and slowing global economy, also, will China go into a deeper recession.

However there are some known factors, such as:

  • Inflation remains low 
  • Interest rates remain low 
  • Energy prices are low 
  • The employment picture is improving 
  • The bond market is stable 
  • Major corporations have strong balance sheets

As we write this letter, the fourth quarter earnings reporting season has just begun. We do expect earnings to be reasonably good, with some of the earnings based on somewhat lower expectations. These good earnings should help stabilize the shaky market.  

At KFA, we are not going to let fear pull us into chaos. We will continue to focus on high quality investments and our diversified asset allocation strategies. For most clients we have purchased defensive positions or portfolios stabilizers, as well as selling non-core underperformers.
 

As we move forward, this market correction may be an opportunity to purchase stock and bond investments at reasonable prices.
 

Please call us if you have any specific concerns, we are always happy to hear from our clients. Thanks you for your continued confidence in us, we wish you a prosperous 2016.

 
Continue reading
1244 Hits