The US stock market hasn’t seen such a great quarterly comeback since 1933. In fact, the Dow Jones and S&P 500 soared to positive territory by the end of this March, even though it had fallen more than 11% at the start of this year. Clearly this indicates that markets cannot be timed. This is remarkable, especially in terms of investor confidence, considering it was the second pullback of >10% in a six month period. Nonetheless, even though it had seemed the market was to spiral, it managed to bounce off the bottom set in August and abruptly move higher.
On February 9th, in his monthly Market Update video, Ron Sloy urged investors to keep calm and stay focused on the long term. By circumstance, two days later the Dow closed at 15,660 – the markets had bottomed. From that point to the end of the quarter, the market closed at 17,685—a benchmark move of 13%, a little higher than where it started in the past year.
Here we will find the Q1 returns of five major indexes, 2016:
BarCap US Agg Bond +3.03%
S&P 500 +1.35%
Russell 2000 -1.52%
MSCI EAFE (Europe) -3.01%
MSCI EM (Emerging Markets) +5.71%
The quarter was massively volatile. These indexes, in fact, barely reflect this. Take a look at the Barclays US Aggregate bond index, for example. Interest rates declined in the most historic and significant way in the last decade, yet this index managed to yield a quarterly return greater than 3% for less than 15% of the time. The erratic nature of the stocks ignited this return—don’t expect this trend to continue beyond Q1.
A bright spot marks our portfolio this quarter, thanks to our slight overweight position within the Energy sector. We also find value in Emerging Markets, thanks to good leadership. Unfortunately we have been disappointed with Q1 results from Financials, Technology, and Europe. However, there is outstanding potential and value for all 3—we certainly expect gained participation from these allocations throughout the year. In fact, we estimate that equity portfolios still have the potential for double digit returns, as markets have bottomed out for the year. As expected, however, continued volatility will remain. Stay calm and be patient.
Remember: markets can’t be timed, regardless of performance numbers, interest rates, and investment themes. Asset allocations must be chosen based on your personal time horizon and risk tolerance. And, this can’t be emphasized enough: stick to your long term goals. Through the good and the bad.
We value your confidence and support. Thank you, and please reach out directly if we can help in any way.
Sloy, Dahl & Holst, Inc.