Terry Sawchuk Founder & Chairman
We thought this would be a good time to reach out and give you an update, and our perspectives on what has taken place so far this year. Needless to say, 2016 in the markets has gotten off to the same kind of start the Lion’s experienced in the first half of their football season. They started out 1 – 7 and immediately removed themselves from the playoffs. So far this 2016, the S&P 500 is down 8%, the Nasdaq is down over 10%. Not exactly the start we were hoping for. The question is; what does this all mean? The truth is, we don’t know, and frankly, nobody does. What we do know, is that having a system is important in times like these. Diversification is also important. We have both.
When you look at what’s going on in China, its hard to fully understand how the drop in their markets should be affecting ours in such a strong way. When you look at China as an export destination for goods and services from here in the good ole USA, it represents about 2%. Hardly enough to move the needle. There is no doubt that the stronger U.S. dollar is having a negative impact on the commodities complex, and of course no conversation about commodities can be complete without touching on oil. The collapse in oil prices has been astounding. Oil touched $29 per barrel last week. While at some point we would expect the absurdly low gas prices to provide a windfall in a variety of ways, to date, the impact seems to be negligible. What it has done, is place an enormous amount of stress on the energy complex, leading to job losses, corporate hardship including reduced earnings and in some cases forced companies out of business. While there doesn’t seem to be any imminent relief, we do know from experience how quickly things can turn. Often times, its something that nobody sees coming that nearly immediately turns the tables. There are silver linings that have come out of this process, which we will get to further in this newsletter.
It’s very important to maintain the appropriate perspective when the markets get volatile like this. Keeping your eye on the long-term view is best, because it is the only way you can reliably predict how it behaves. Sadly, there is simply too much misinformation being disseminated today suggesting that the markets are somehow predictable over the short-term. They’re not. It is that simple. There are many technical analysis tools that can be deployed to help understand short-term moves, but they don’t predict the market. They can identify trading ranges, meaning the upper and lower short-term boundaries that a stock market index trades in, for example the Dow Jones Industrial Average might trade
between a low end of 16,000 and a high end of 18,000. These are just hypothetical examples, but they are meant to illustrate that while we can identify a range, it really means nothing in terms of a predictive tool. What has changed dramatically in recent years, the speed at which money moves. High-speed trading has warped how the markets work. Selling begets more selling. As the markets move, and hit certain thresholds it triggers even more selling which explains why the markets have fallen further and faster this year than in any other year in the stock market’s history. Think about that. Does it really feel like we are living in the worst financial times in the history of the stock market? We aren’t saying times are great, but the market is out of whack with the reality of our current economy.
In 2015, with very little fanfare, the U.S. lifted the ban on our ability to export oil. While that may not seem like a big deal, in the long-term it could have profound implications.We are truly energy-independent. At some point, the Middle East will become a non- issue. It may be closer than you think. It’s just one, seemingly small, but potentially profound change that should make you feel very optimistic about America’s future. We are the strongest economy in the world, we have the most innovative companies and the brightest future. It’s important to keep that perspective when things get uncomfortable like this.
We would be remised if we simply ignore the possibility that whatever is going on in the markets right now, couldn’t turn into something larger that nobody sees coming at this point. We have to acknowledge that anything is possible, and there could be more at work here than what meets the eye. If that is the case, our tools have done a very good job of historically being able to navigate around longer-term more protracted economic/stock market downturns. To reiterate, there is nothing out there that can accurately and consistently predict short-term moves. We are using all of the resources and tools available to us to ascertain the nature of this current economic environment and are prepared to make the necessary adjustments should the environment call for more substantial changes to our portfolios. To reiterate, any move we might make would be with the long-term in mind, to protect capital from more predictable long term moves, the kind that have a serious negative impact on investor capital. We know that avoiding more substantial long-term declines is important in the pursuit of long-term investment results, and to that end, we have tools and resources to help us do just that.
Ultimately, investing for the long-term is a lot like flying in an airplane. Anyone whose ever flown a few times has been on a plane when it goes through a period of rough turbulence. Nobody likes it, but it comes with the territory. If you want to get to California, and not spend three days in a car with screaming kids, you’re going to have to jump on a plane. When you’re on that plane, and the roller-coaster ride begins, you have two choices. You can buckle up and deal with the discomfort, all the while knowing that, while its uncomfortable, its not really dangerous. Your other option is to don a parachute and exit the vehicle. Of the two choices, one is entirely more risky. In the pursuit of your long-term goals, buckling up and putting up with the discomfort is almost always the best approach.
As always we appreciate your trust and confidence, and like the airline pilot, we will do our very best to provide you with the most comfortable ride possible while getting you to your destination safely.
Visit www.sawchukwealth.com to review past issues of The Marketview.
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- The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
- The Dow Jones Industrial Average is a price – weighted index of 30 actively traded blue – chip stocks.
- The Nasda q Composite Index is an unmanaged, market – weighted index of all over – the – counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
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- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
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