Quarterly Commentary

 2016 First Quarter

The first quarter of 2016 witnessed volatility and strong selling in the month of January and early February, though March ended the quarter on a strong note.  Continued concerns about the Chinese economy and global growth, in addition to weakness in oil prices contributed to a very downbeat January.  Further, a strong dollar and weaker corporate earnings continued to plague U.S. equity markets.   The Federal Reserve, after raising rates in late 2015, postponed further tightening, helping markets recover in March.  Despite the rollercoaster of the first three quarters, most U.S. equity indices, bonds, and commodities all ended the quarter higher.

After the worst January for stocks since 2009, the S&P 500 and Dow Jones Industrial Average finished the quarter green.  The S&P 500 ended the up 0.8% and the Dow Jones ended up 1.5%.  The Nasdaq Composite, a bright spot in 2015, finished the quarter down 2.8%.  While the uncertainly of January resulted in markets selling off, both at home and abroad, there were a few asset classes that performed well.  As is generally seen when there is a flight-to-quality trade, the U.S. dollar, the Japanese Yen, and gold all performed well, with the spot price of gold up a strong 16.5% on the quarter.  Oil prices, a constant source of weakness which permeated the high yield and energy sectors in 2015, recovered after dipping below $30.  After a strong March, prices per barrel climbed north of $38, finishing the quarter positive.  As the oil rally went, so did equity markets in March.

After raising rates in late 2015, and a dismal January, markets began to turn in mid-February as Federal Reserve Chair Janet Yellen stuck a more dovish tone.   She was quick to note that the pace of rate hikes in 2016 and beyond could be slower and more measured than initially forecast.  With the Bank Of Japan and the European Central Bank experimenting with near zero and, in some cases, negative interest rates, Chair Yellen appears to be cognizant of a United States tightening while the rest of the world continues to ease.  These divergent policies could have significant impacts on global growth, emerging market debt, and the strength of the U.S. dollar.   

While the economy slowly improves in the United States, we still face a historically strong dollar, deflationary pressures as a result of commodity prices, and the uncertainly of a presidential election year.  Domestically, markets will attempt to build on the March gains as spring approaches.  Globally, we will continue to monitor if the extended policy stimulus by global central banks achieves its growth and inflation goals.

2015 Fourth Quarter

After a third quarter which saw markets struggle both domestically and abroad, the fourth quarter brought positive gains across most asset classes, excluding the energy and gas sectors.  Strong gains were posted in October, though the numbers were tempered by a decline in December.  For the last three months of 2015, the Dow Jones Industrial Average was up 7.70%, the S&P 500 rose 7.04%, and the Nasdaq was once again the leader, up 8.38%.  Stocks ended the year mostly flat after a year which saw the resurgence of heightened volatility and sharp moves.  The Barclay’s Aggregate Bond Index finished the quarter down 0.60%, but still managed to close the year positive, up 0.50%.  High Yield Investments, as measured by the Barclay’s High Yield Index, finished the quarter down 2.1%, with a year-to-date performance of -4.5%.  Lastly, international markets, which posted a positive fourth quarter, finished the year down.  As an index, developed international equities were down fractionally, while Emerging markets saw a larger decline.

The major story for the fourth quarter was the decision of the Federal Reserve to raise short-term interest rates off zero, the first raise since lowering to zero back in 2008.  Markets initially welcomed the news as many now believed that the United States economy was strong enough to weather a rate increase.  The initial optimism faded though as the month progressed.  Investors began to question, with an already strong dollar, and mixed economic data, will markets be able to cope with an economy that is poised, though slowly, to tighten monetary policy. 

For the quarter and overall for 2015, oil prices have continued their precipitous fall, dropping to below $40 per barrel in the third quarter.  The decline in oil prices is a double-edged sword with ramifications on both sides.  On the positive side, lower oil prices benefit companies in the form of lower costs, consumers pay less at the pump, and economies struggling around the world view these prices as stimulative.  Conversely, oil and gas companies, which make up a key portion of U.S. equity indices, continue to feel the pain of low oil prices.

As we close out 2015, issues presented in December will remain paramount as we begin the New Year; most notably:  Will the European Central Bank redouble its efforts at quantitative easing?  Are low oil and commodity prices foreshadowing slowing global growth?  Can companies continue to grow both revenue and profit numbers?  These risks notwithstanding, we enter this election year with low unemployment, strong corporate balance sheets, and consumers benefiting from all-time low interest rates.   These factors could prove to be a headwind for the U.S. economy going forward in 2016.

2015 Third Quarter

The third quarter of 2015 saw markets in the United States and around the world deliver their worst quarterly performance in four years.  The recent decline has been in contrast to what investors have become accustomed to throughout the past six years, excluding the third quarter of 2011.  For the summer quarter, indices finished notably lower, with the S&P 500 down 6.94%, the Dow Jones Industrial Average down 7.58%, and the Nasdaq Composite down 7.35%.    Defensive sectors such as utilities and consumer staples performed best during the quarter as both sectors were positive, up 5.4% and 0.2% respectively.  Conversely, the sectors hit the hardest in the quarter were energy, down 17.4%, and materials, down 16.9%.  Further, the Barclay’s U.S. Aggregate Bond Index finished the quarter positive, up 1.34%, as investors sought safety in U.S. debt obligations.

Gross Domestic Products (GDP) rose 3.9% in the second quarter, though forecasters still see growth for 2015 in the 2.0% range.  This rebound was attributed to strong consumer spending and business investment.  Though inflation still remains below the Federal Reserve’s 2% target, employment figures, the unemployment rate, and housing demand were all strong during the quarter.  

While markets were rattled in the spring and early summer with the Greek crisis in the Eurozone, Greece has fallen to the back of many investors’ radar screens.  What took center stage and continues to loom over markets is the situation in China.  For the quarter, the Chinese stock market was down 22.7%, with another notable emerging market country, Brazil, down a staggering 33.6%.   Realizing that China is now the world’s second largest economy, fear has spread that if Chinese growth slows, it may drag competing world economies down as well.

Lastly, the Federal Reserve decided not to raise interest rates during their September meeting.  Many had speculated that September was the month when the Fed would raise rates off 0%.  This was not the case.  Federal Reserve members cited international concerns and increased volatility as a primary reason for the lack of action.

As we enter the final quarter, we are met with a number of issues.  Investors are dealing with global economic concerns, heightened valuations of U.S. equities, oil prices south of $50, and a continued strong dollar.  Earnings and revenues for the current quarter are expected to be flat to down year over year, as concerns mount whether companies can grow their top and bottom lines.  We are eager to see if the third quarter was a correction with the fourth quarter bringing back positive returns or if the last quarter was the start of something more severe.

2015 Second Quarter

The second quarter of 2015 saw markets in the United States and around the world trade with uncertainty and choppiness.  Though equity markets domestically are flat to up modestly, there have been a myriad of issues presented that have allowed markets little clarity.  For the spring quarter, indices finished mixed with the S&P 500 and Dow Jones Industrial Average down -0.23% and -0.88% respectively, with the Nasdaq finishing up 1.4%.  

Markets have certainly seen an eventful spring with news at home and abroad.  During the past three months, we have seen mixed economic data, no direct signal from the Federal Reserve on when rates will be rising, continued turmoil in Greece, and employment figures that offer conflicting messages. 

Though personal income and spending did improve during the past three months, first quarter GDP, a measure of overall economic production, was revised downward to -0.2%.  Even with the harsh weather experienced, a negative measure of growth is disappointing, though many still expect the U.S. economy to grow roughly 2% in 2015.   Some see the current low-inflationary, low-growth environment as persisting for quite a number of years, and have referred to this scenario as the ‘new normal.’

The Greek saga of their debut situation took headlines during the month of June, with equity and fixed income markets both suffering.  Couple this Euro-zone problem with possible slowdown in China and their volatile stock market, and the jitters were felt across all asset classes.

As we enter the second half of the year, we hope for clarity and direction for the issues both at home and abroad that give the markets pause.  We will certainly gain a level of clarity once the Federal Reserve meets in the fall and winter regarding the possibility of raising rates.  Markets can react to both good news and bad news, but prolonged uncertainty gives traders and investors apprehension going forward.

2015 First Quarter

The first quarter of 2015 brought heightened volatility to markets; though, when the quarter came to an end, equity and bond markets showed relative resilience.  The Dow Jones Industrial average finished the quarter up 0.33%, the S&P 500 up 0.95%, and the Nasdaq up 3.79%.  The Barclay’s U.S. Aggregate Bond Index finished the quarter up 1.49%.  The increased volatility was seen in the contrasting months of January and February, with the Dow down 3.6% in January, while rising 5.7% in February.

Key themes permeating the first quarter were continued falling oil prices, the strength of the U.S. dollar, and the European Central Bank’s monetary easing program.  Ironically, many of the trends that made headlines the first three months of the year were issues quite relevant to market movement in 2014.  As a result of lower oil prices, many of the world largest energy companies have cut spending, reduced workforces, and lowered earnings guidance.  Further exacerbating the revenue growth of multinational corporations, including energy players, is the dollar’s continued ascent, rising more than 9% against major foreign currencies.  

A potential bearish note for U.S. equities is the convergence of decreased exports and corporate earnings as a result of the strong dollar, coupled with weakness in the energy sector.  Some forecast a $10 decline in S&P earnings as a result of these two tailwinds.

On a more optimistic note, bullish signs for U.S. markets continue to play a factor in our markets: low interest rates, low inflation, and a slow, yet steadily improving economy.   Add to the picture the consumer saving money at the pump, and this lends further credence to increased personal consumption.

Lastly, investors continue to wait and speculate on the Federal Reserve’s next move.  Most commentators and analysts agree that the Federal Reserve will raise rates this year, but the question remains as to when.  Though rates are expected to rise slowly, any rise from these historically low rates may factor into market movement.  

2014 Fourth Quarter

The final three months of 2014 saw U.S. equity markets continue to reach all-time highs.  Additionally, fixed income investments, as displayed through the Barclay’s Aggregate Bond Index, finished the year strong.  Many analysts and investors speculated that 2014 would be the year of rising interest rates, but the final quarter witnessed rates moving lower and stocks moving higher, a common theme throughout the year.  For the quarter, the Dow Jones Index finished up 5.20%, the S&P 500 up 4.93%, and the Nasdaq up 5.40%.  International markets, and more specifically emerging markets, had a rough quarter finishing down 4.88%.  The Barclay’s Aggregate Bond Index, driven by a decline in interest rates, posted a 1.79% gain in the final three months.  The gains for the year were widespread with the Dow Jones, Nasdaq, and S&P 500 finishing up 10.04%, 13.40%, and 13.69% respectively.  On the fixed income side, The Barclay’s Aggregate Bond Index finished up 5.97% in 2014. 

The months of October, November, and December saw more accommodative Federal Reserve language, stronger economic data, and lower unemployment.  With strong earnings reports and increasing revenues from U.S. companies, the third quarter’s Gross Domestic Product (GDP) growth was a robust 5%.  This figure was much stronger than most people anticipated and garners optimism that growth can continue into 2015.  Additionally, world markets reacted to a sharp drop in the price of oil, with a collapse in the Russian ruble dominating early December headlines.  Certainly, this precipitous fall in oil prices was one of the most dramatic and extreme movements across all asset classes.  With oil falling near 50% from its summer highs, this surprise might only have been matched by the drop in the ten-year Treasury note.   Starting the year above 3%, we ended 2014 with the note yielding 2.17%, a very surprising 25% lower.

As we enter the New Year, questions abound.  Will the steep drop in the price of oil help or hurt the economy?  Will the money consumers save at the pump be offset by the pain felt in the energy sector and foreshadow slowing global growth? How will the citizens of countries that depend on high oil, such as Venezuela and Russia, react facing current account deficits?  As we continue to see an economy improving, will growth cause interest rates to begin to rise and how rapidly?  These and many other questions will demand answers in 2015.  

We are positive yet cautious as we begin 2015.  The New Year looks promising for growth in the United States and the continuation of a stronger economy, but risks remain.  With equity markets near all-time highs and interest rates near record lows, we could certainly see volatility and exaggerated moves in investments across all asset classes.    

2014 Third Quarter

The third quarter of 2014 saw the continued upward trend of U.S. markets.  Though the last month of the quarter brought pressure to stocks, all three major U.S. indices were positive for the quarter with the Dow up 1.87%, the S&P 500 up 1.13% and the Nasdaq gaining 1.93%.  The major technical milestone of the quarter was the S&P 500 breaking through the 2000 point level.  Though the index had a difficult time remaining at this level, the S&P at 2000 is a far cry from our March 2009 S&P lows of 676.  Fixed Income investments were able to generate a small gain in the quarter with the Barclay’s Aggregate Bond Index up 0.17%.  

Though U.S. stocks continue to set new highs, all sectors did not share in this prosperity.  Small cap stocks have underperformed both this quarter and year, suggesting investors are becoming more risk-averse in equity markets.  Additionally, the MSCI EAFE Index, a benchmark in the United States to measure international equity performance, is down 3.87% year to date.  With oil and gold also struggling so far this year, one must be vigilant in determining asset allocation.

As we have seen throughout the first nine months of the year, positive economic data has been mitigated by weaker numbers and geopolitical turmoil.  The past three months have delivered rising auto sales and stronger home prices, coupled with increasing retail sales and consumer confidence numbers.  Conversely, September’s job creation showed gains that were well-below forecasted expectations with only 142,000 new jobs created.  Further, the Middle East tensions with ISIS and recent Ebola outbreaks in the US and Africa have given investors reason to be cautious.

Entering the fourth quarter, we continue to position defensively in the face of a market that has yet to see a significant pullback in the last five years. Though no one knows when this correction may happen, there may be a heightened sense of risk in the coming months if volatility continues to increase.

2014 Second Quarter

The second quarter of 2014 saw the continuation of the five year bull market with U.S. equity markets reaching new all-time highs.  The S&P 500′s 4.7% quarterly advance was the strongest for the second three months of the year since 2009, when the index rose more than 15% in that time period.  Though economic data has been mixed with stronger than expected corporate earnings and job growth, we are still hesitant that the consumer is on strong financial footing.  Inflation, a key metric of the consumer’s ability to spend, is beginning to steadily rise, driven by higher food and energy prices.  

The past three months were highlighted by a number of substantial mergers and acquisitions.  With company balance sheets strong and a low-rate environment, we believe merger and acquisition activity will continue to stay strong in the second half of the year.  

From a fixed income perspective, the U.S. Federal Reserve continues to ‘taper’ its stimulus program, while the European Central Bank unveiled a substantial monetary stimulus package.  The 10-year Treasury note is trading close to the lowest yield of 2014, around 2.50%.  If economic conditions continue to improve and inflation begins to heat up, we expect rates to gradually rise over the next few months.  

Market reaction to international events in the Middle East and Ukraine has been muted, though crude prices saw a slight uptick as a result of the instability in the Iraq region.  Going forward, we will be keeping an eye on the conflict in the Middle East, crude prices, the Fed’s taper program, and corporate earnings.  The summer and early fall will show whether markets continue to push through record highs or, if it’s only a matter of time until we see what some believe to be an “overdue” correction.


2014 First Quarter

The first quarter of 2014 saw an up-and-down market highlighted by harsh US weather conditions, international turmoil, and increased volatility.  The Dow Jones finished the quarter up 0.7%, the S&P 500 up 1.3%, and the Nasdaq up 0.5%.  Despite many individuals expecting a pullback as a result of the stellar 2013 returns, we saw a surprisingly resilient market that ended the quarter positive.
Disruptive weather caused most economic indicators for the past three months to come in weaker than expectation.  In addition, many companies blamed the poor weather for lackluster Q1 performance.  Globally, the political tension regarding the Crimea region dominated headlines, while continued fear of a Chinese economic slowdown has some investors worried.

The Federal Reserve remained a key focus for markets, as Janet Yellen embarked on her tenure as the head of the Federal Reserve.  The Fed stayed the course on tapering its quantitative easing program despite softer economic data.  Even with the taper, yields surprisingly fell during the quarter, with fixed income showing positive results.  The Barclay's Aggregate Bond Index gained 1.9% during the quarter.


We enter the second quarter of the year looking to build on small, yet positive gains year to date.  We will continue to monitor how the market reacts to the tapering program and the effect earnings and economic data have on the stock market going forward.

2013 Fourth Quarter


The final quarter of 2013 proved a strong finish to a year which saw markets rally to all-time highs.  The bull market in equities for the year proved resilient, even in the face of rising interest rates in the spring and a government shutdown in the fall.  The Morningstar US Market Index rose 9% in the fourth quarter.  As was the case for most of the year, the spotlight once again fell on the Federal Reserve and their quantitative easing program.  In the fourth quarter, many in the financial community began speculating how the Fed’s bond buying policy might change as a result of improved economic data and an economy that seems to be finding its footing.  That was answered in a way that markets cheered, as Chairman Bernanke decided to taper the plan from $85 billion in purchases to $75 billion in purchases.  As a result of the Fed’s actions, the market had its best day of the quarter, rising 292 points on the Dow Jones.

Interest rates continued to rise in the fourth quarter, with the 10-year Treasury rate touching 3% just before the end of the year. With the Fed still buying bonds through their Quantitative Easing program, we will eagerly be watching and anticipating how the market reacts to their moves in 2014. 

We see a strong 2014 as we begin the year.  We believe interest rates will rise, though at a measured pace.  With strength in the housing market, improved job numbers, and strong economic sentiment, we forecast the US markets having a solid year going forward.

2013 Third Quarter

As we enter the 4th Quarter of 2013, trepidation over a possible government shutdown is raising fear levels for the average investor. The partial government shutdown in early October may dampen fourth quarter economic growth, but it is unlikely to do substantial damage to the economy. Social Security checks will continue to be sent, the mail will still be delivered, and our bonds and their interest payments will likely get paid. In fact, the last government shutdown in 1995 actually saw the stock market rise 5%.

The Fed continues to support economic growth through its bond purchase program. As a result, we expect the U.S. economy to resume a modest pace of growth through 2014. In the meantime, we continue to watch the Fed closely for any signs of when tapering may begin. Tapering could potentially occur in early 2014, as inflationary pressures remain benign and unemployment is elevated above their stated 6.5% target.