August 2016 Market Review from SWM

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August 2016


 In This Edition:

  • Market Review 
  • US Economy
  • International Economy
  • Insurance Updates
  • My Thoughts



Market Performance

Stock Market


 YTD '16

12 Month

 Total U.S. Market1 +3.79% +7.74% +4.44%
   Domestic Large Cap Equity2 +3.69% +7.66%  +5.61% 
   Domestic Small Cap Equity3 +5.97% +8.32%  +0.00% 
 International Equity4 +4.95%  +3.88%  -5.54% 
   Developed International Equity5 +5.07% +0.42%  -7.53% 
   Emerging Market Equity6 +5.03%  +11.77%  -0.75% 

Fixed Income


 YTD '16

12 Month

 U.S. Bonds7 +0.63% +5.98%  +5.94% 
Cash Equivalent8 +0.02%  +0.14%  +0.16% 
1Russell 3000 2S&P 500 Index 3Russell 2000 Index 4MSCI ACWI ex-U.S. Index 5MSCI EAFE Index 6iShares MSCI Emerging Markets Index 7Barclays Capital U.S. Aggregate Bond Index 8Barclays Capital 1-3 Month U.S. Treasury Bill Index   

Dear Visitor,

We remain neutral on U.S. equities, which means we recommend investors remain at their long-term target equity allocations, while using volatility to tactically rebalance around those levels. We believe the current bull market will continue but not without some additional drama. The nice thing about the past month is that it has allowed investors and policy makers alike to catch their breath following the chaos that followed the Brexit vote.

The latest batch of U.S. economic data doesn’t appear to presage an imminent recession, which would typically lead to a bear market. Consumer confidence has firmed, with the labor market continuing to improve, housing looking good, and wages finally starting to rise. Additionally, we’ve seen both revolving consumer credit and bank loans increase, indicating consumers may be more comfortable taking on debt. 

December Market Review

Near the end of June, plenty of analysts and pundits projected sharp losses in the global markets for a variety of reasons, including the surprising Brexit vote. Global stock markets were expected to swoon, led by the U.K. In turn, many investors raised cash. Fast forward one month. July was simply outstanding for the global financial markets. The European markets also did well, and the U.K. stock market actually led the way. As a result, despite the waves of negative chatter about the global economy and markets, it’s been a solid year so far, especially for globally diversified portfolios.

In July, the overall market (Russell 3000) gained nearly 4%, as did large-caps (S&P 500). Small-cap stocks (Russell 2000) did better, up by about 6%. International stocks (MSCI ACWI ex-U.S.) gained 5%, as did both the both the major indices for developed international markets (MSCI EAFE), and the emerging markets (MSCI Emerging Markets). The bond market, meanwhile, was up nearly 1% again and the 10-year Treasury ended last month with a yield of 1.46%. Commodities, however, was one asset class that did have a loss last month, losing about 5% (Bloomberg Commodity Index).


It was another relatively quite month for economic news, but reports were generally a bit more upbeat than expected. While June housing starts were revised modestly lower, July starts were significantly better than expected, increasing at the fastest pace in five months. Starts were led by a 5% surge in the multi-family sector, which can be quite volatile. Meanwhile, single family starts increased a much more modest 0.50%. The Conference Board's index of leading economic indicators also improved more than expected in July as rising stock prices, low interest rates, and an increase in the factory work week were important positive contributors. Finally, the consumer price index was unchanged, indicating once again that there is little threat of inflation accelerating in the immediate future.

On Wednesday the Fed released the minutes of its July policy meeting, which indicated a lack of consensus among committee members as to the potential timing of their next interest rate hike. Some members, citing strength in the employment market, suggested a move was warranted sooner rather than later. Others, emphasizing the lack of inflation cited above, suggested that further moves could be delayed until inflation moved significantly closer to the Fed's 2% annual target. The minutes stated that "Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity." While the Fed's next policy meeting isn't until September, investors will eagerly await Chairwoman Janet Yellen's speech next Friday at the Fed's annual symposium in Jackson Hole Wyoming as they attempt to discern the timing of the Fed's next move.


Global stabilization remains the most likely underlying trend, albeit a more prolonged process with greater downside risks following Brexit. The U.K. may be headed toward recession, and Japan slipped into a mild contraction as a stronger yen pressured exports. Political uncertainty unleashed by Brexit is likely to dampen sentiment and provide a stiff headwind for business investment in the rest of Europe, but reasonably healthy household sectors should help support activity. Relatively steady expansions in the world's two largest economies-the U.S. and China-are supportive of global growth. China's economy still faces massive industrial overcapacity and an overleveraged corporate sector, but the policy emphasis on stability and fiscal stimulus makes a near-term stabilization the most likely scenario.

Markets shifted to expecting an even softer monetary stance amid global weakness, as expectations for additional Fed tightening were eliminated during Q2. Negative policy-rate moves in Europe and Japan preceded sharp declines in the prices of their banking shares, highlighting that negative rates may run counter to their intended goals and that ultra-accommodative monetary policies may be hitting limits of effectiveness. However, any stabilization in the global economy may support risk assets. Rising oil prices, the low base effect of inflation, and record-low bond yields may indicate that the potential for upside inflation surprises is not priced in. Due to the more mature U.S. business cycle and the expectation of continued political and policy uncertainty, we maintain an expectation of elevated market volatility.


There are literally hundreds of different annuity types−−enough to boggle the mind of anyone at first glance. Furthermore, the companies that issue annuities are busy creating new types of annuities every day to meet the changing needs of consumers. Annuities can be used to help you increase your savings, protect what you've saved, or generate a stream of income.

A variable that separates one annuity from one another is how an issuer invests your money once you purchase an annuity. There are three broad methods that issuers use to invest your money:  fixed, variable, and equity−indexed.  All annuities have a different purpose and investment platform to assist you to reach your retirement goals.Annuities can be complicated, with new products entering the market every year, most have several new benefits.  If you have annuity, and need to know if it is outdated or simply need a review, we would be happy to look over the policy to give you our opinion.  

Thoughts to Ponder?

The global financial markets are having a great year, despite what seems to be so much bad news, or potential bad news. In turn, it’s natural for many investors to consider pulling back from adding to their investments. It sounds reasonable, but not so fast.

First, remember there are always things to worry about. Just think about this century so far. In less than 20 years, we have witnessed the deepest economic contraction and financial crisis since the Great Depression nearly 90 years ago. And, in turn, the stock market has experienced two massive 50% losses.

If one knew these events would happen in advance, the easy answer would be to just stay in cash and wait out the storm. But remember why investors invest. Investing is different than saving. Savings need to be safe and secure. Savings are for near-term liabilities, rainy days, and leaky roofs. Investing, meanwhile, is about the prospect of stronger portfolio growth over time in an attempt to meet longer-term financial goals and aspirations. Investing isn’t about beating a market benchmark, it’s about “beating the bank” (i.e., getting a higher rate of return than saving money in the bank would provide). If not, why take the risk when investors could just keep their money secure in a savings deposit?  So, given this evidence, not only should long-term investors stay invested and true to their Risk Budget targets, they should also maintain globally balanced portfolios.


Mark Sumner
Financial Advisor

Sumner Wealth Management, Inc.                
517 Alcove Road, Suite 202                                            
Mooresville, NC  28117                      
(704) 660-5510  Ext. 401                                                                 

Investment Management
Retirement Services

Our firm assist individuals, families, and businesses in proactively preparing themselves for a broad range of financial decisions and life events by utilizing a team of specialized individuals to help our clients gain income protection, financial stability, and overall peace of mind for themselves and their loved ones.  We are an Integrated,  Wealth Manager Specialists.   

   Sumner Wealth Management | 704.660.5510 x 410 |

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If a recommendation is included in the above email, please contact me for additional investment information supporting the recommendation.

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