Stock Market Update
Other than the NASDAQ, 2015 was a down year for all the major indices. The same factors that kept stocks from advancing in 2015 are probably going to continue to adversely affect stocks in 2016.
Economic growth around the world remains weak. There has been a sharp deceleration in the growth of global trade, and the rapid drop in commodity prices is posing problems for resource-based economies.
Corporate profit growth was dismal last year, as plunging prices of oil and metals slammed energy and raw materials producers, and the stronger dollar hurt exporters.
From a technical perspective, stock market volatility has been rising since the middle of 2014. The same phenomenon occurred prior to the last bear market.
Below is a chart of the VIX (top portion of chart) from 2006 – 2008. Notice how the VIX began to rise as stocks (lower portion of chart) also continued to rise. Keep in mind that volatility normally falls as stocks rise.
Now check out the same VIX chart over the past 5 years. Notice how the VIX has been steadily rising while stocks either rose or went sideways; just like they did in 2007 prior to stocks falling in excess of 50%.
The odds of a steep drop in stocks this year are high given poor economic factors and increasing stock market volatility. Because of this, managing stock market risk will be paramount in 2016.
This is not all bad news. The increase in stock market volatility will bring opportunities to make money but those opportunities may be in buying stocks after they fall and possibly shorting stocks.
Client Update
Our TLT (Treasury Bond ETF) holding stopped out last week.
Aggressive accounts are 100% invested in a Money Market Fund.
Conservative accounts are 30% invested in High Yield Municipal Bond Funds and 70% in a Money Market Fund.
Craig Thompson, ChFC