January Market Review from SWM

 swm noname    



 In This Edition:

  • Market Review for December and Year End
  • Economy
  • International
  • Insurance
  • My Thoughts?

Market Performance

Stock Market



YTD 2016

 Total U.S. Market1  -2.05%  +6.27%  +0.48%
   Domestic Large Cap Equity2  -1.58%  +7.04%  +1.38%
   Domestic Small Cap Equity3  -5.02%  +3.59%  -4.41%
 International Equity4  -1.88%  +3.24%  -5.66%
   Developed International Equity5  -1.35%  +4.71%  -0.81%
   Emerging Market Equity6  -2.23%  +0.66%  -14.92%

Fixed Income



YTD 2016

 U.S. Bonds7  -0.32%  -0.57%  +0.55%
Cash Equivalent8  +0.01%  +0.01%  +0.03%
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,

Stock markets greeted 2016 with a shudder—the S&P 500® dropped some 1.5% on the first day of trading, one of the six worst opening day performances since 1927, according to Bloomberg. U.S. stocks followed other international markets down: In China, trading in some markets was halted after losses surpassed 7%, while European indexes also fell.
Investors are facing some of the same dynamics they left in 2015—slowing growth in China and a divergence of central bank policy with the Fed looking to raise rates in the U.S. while China looks to devalue its currency and stimulate growth.So why did the markets sell off? Markets had hit a low on December 14, then after the Fed announced the rate hike, stocks rallied into the end of the year. But that rally happened on very little volume—many investors were not participating. When investors came back from the holidays they saw the Shanghai index down 7% and negative manufacturing survey numbers. For anyone who was hoping to close the book on 2015, it was a rude awakening that we still face many of the same issues. But it is important to keep things in perspective. The selloff, while attention grabbing, just erased the gains from the final weeks of 2015, and brought the markets back to where we were a few weeks ago.

December Market Review

December wasn’t a great month for the global financial markets. All markets finished lower, with the exception of cash. For 2015, overall performance wasn’t much better, and in some cases, losses were in the double digits. The bull market in the U.S. stock market might still be alive, but it has definitely matured and has lost its youthful vigor.For December, the overall U.S. stock market (Russell 3000) lost just over 2%. Large-cap stocks (S&P 500) lost about 2%, while U.S. small-cap stocks (Russell 2000) lost 5%. International stocks (MSCI ACWI ex-U.S.) also lost about 2%, developed economies (as expressed by the MSCI EAFE Index) lost 1%, and emerging market stocks (MSCI Emerging Markets Index) lost 2%.For the year, U.S. large caps gained 1%, while U.S. small caps lost 4%. In the international stock markets, developed markets lost 1% and emerging markets lost a whopping 15%. Diversifying asset classes, such as commodities (Bloomberg Commodity Index), lost another 3% last month and finished the year down 25%. Alternatives (Morningstar Diversified Alternative Index) lost 1% in December and 4% for
the year.One important story was in fixed income. Despite the Federal Reserve (Fed) raising short-term rates, the 10-year Treasury rising to a yield of 2.27%, and credit spreads widening, the bond market (Barclays Capital Aggregate Index) barely lost ground last month and finished the year higher by 1% – even slightly outperforming the overall U.S. stock market.


Expect elevated volatility this year, as China and rate policy weigh on markets.

Stocks began 2016 on a volatile note. Manufacturing reports from China came in below market expectations and showed slowing activity for the fifth straight month. The latest reports added to longstanding concerns about the health of the Chinese economy and led to a sharp selloff in stock markets in China, Europe, and the U.S.

Four key takeaways

  1. Slowing growth in China and Fed tightening may spur volatility entering 2016.
  2. The global economy will likely muddle through the choppy backdrop as the year progresses.
  3. Gradual Fed rate tightening to normalized levels may boost confidence in the U.S. economy.
  4. Our 2016 outlook is supportive of stocks, but higher market volatility may warrant smaller bets.

The latest reports are further evidence of our view that China's economy is in a growth recession and faces significant challenges, but policymakers there appear to be intensifying stimulus measures in effort to stabilize the economy.

We think investors may need to prepare for more volatility this year, and that China does remain a key risk. But our base case is that the world will muddle through thanks to U.S. economic growth, moderate U.S. rate changes, and a move towards global economic stabilization. And that could support gains in stocks, though careful stock selection will be critical and smaller asset allocation bets may be warranted.


China is trying to navigate the difficult transition from an economy dependent upon investment to one driven by consumption. Commencing last summer, confidence in China's ability to manage this process began to wane when the Chinese government surprised markets by devaluing their currency, the yuan. More so than the size of the move, the unexpected nature of the move spurred investor fear that the Chinese economy was weaker than reported. With their confidence shaken, investors aggressively sold Chinese equities last summer. The selling was so intense that Chinese officials imposed bans on short-selling and adopted circuit-breaker rules in an attempt to manipulate and create a more orderly market. Well, over the past week the effects of renewed selling of the yuan were intensified by those measures only just recently implemented by Chinese officials. The ban on short-selling, which was due to expire on January 8th, but has since in some form been extended, may have prompted sellers to start entering the market before that date. Similarly, when circuit breakers kicked in twice this week (the second time almost immediately following the start of the session!), investors may again have been prompted to sell for fear of not being able to sell at all! By the end of the week the China Securities Regulatory Commission announced that they were suspending the new circuit breaker system.


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What is an investor to do duing volitale market?  But that doesn’t mean you should avoid investing in stocks ... except maybe Chinese stocks. Nor does it mean that you should just ride out the jaw-dropping volatility in the market, either.
• First, turn off the TV.  I suggest "turning off CNBC" or any other "news station" and not reacting to these sorts of events by trying to time the market. "Don't attempt a strategy of bailing out temporarily until things 'calm down,'".  Remember, buy low, sell high.

• Second, think big picture. The longer your investment time horizon the more likely it is that you cannot only ride out this current crisis, but continue to invest in stocks as they go “on sale,” as some investment experts like to say during times like these. People today can expect to live on average to nearly 80. So someone in their 20s has an investment time horizon of at least 60 years, and for someone in their 40s its four decades. And, while past performance, as the famous investor warning goes, does not guarantee future results, stocks over the long term have gained on average 10% to 12% per year since the late 1920s.On the other hand, pre-retirees — those in their 50s and early 60s — as well as retirees have shorter investment time horizons, say 20 or 30 years, and can’t afford to put their retirement lifestyle at risk. They just don’t have as many years to recover from bear markets as do Millennials and Gen Yers. So they might revisit how much they invest in stocks.As a general rule, consider subtracting your age from 100. That should tell you how much to invest in stocks. So, if you’re 50, consider investing 50% in stocks and 50% in bonds. And if you’re 25, consider investing 75% in stocks and 25% in bonds.

• Third, review (or create) your investment policy statement. Investors, no matter their life stage, should always have an investment policy statement (IPS) for their portfolio. It's a blueprint outlining how much to invest in stocks, bonds and cash given their time horizon, risk tolerance and investment goals.  Re-evaluating your risk, or goals at a time of volitality will put your ideas or thoughts into perspective.

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


   Sumner Wealth Management | 704.660.5510 x 410 | www.SumnerWealthManagement.com

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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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