Commentaries
PMC Weekly Review - July 8, 2016
A Macro View – Just when you thought it was safe to go back in the water…
The Brexit aftermath has reminded us once again that US equity markets have been turbulent in recent years. Although prosperity appeared to have returned to the markets in 2013 and 2014 (2014 marked the third straight year the S&P 500 Index posted double-digit gains), volatility increased in 2015. An August 2015 sell-off, spurred on by fears of slowing growth in China, saw sharp drawdowns reminiscent of the October 2008 crash. Investors experienced dramatic swings throughout 2015 as the market wrestled with the effects of China's currency devaluation, falling oil prices, and uncertainty over interest rates hikes. The markets
bounced back by year end, with both the Dow Jones Industrial Average and S&P 500 Index closing 2015 essentially flat, only to see US equity markets suffer their worst start to any year in history right out of the gate in 2016.
Equities continued to struggle in 2016 through mid-February, but began to recover during the second half of the quarter. Losses were regained, and then some, as the S&P 500 closed the quarter up +1.4%. The market environment seemed to calm in the second quarter of 2016, but just when it seemed safe to go back in the water, Britain’s vote to exit the European Union sent
markets reeling, causing an abrupt, albeit short-lived, sell-off. Within a week, US equity markets had essentially returned to pre-Brexit levels. The S&P 500 ended the quarter up +2.5%, but in the wake of Brexit, many have been left wondering what comes next.
In spite of heightened volatility, from a 10,000 foot view, US equity markets essentially have gone nowhere over the past few years. The S&P 500 Index has stayed roughly in the range of 1800-2100 since 2014. But despite the fact that US equity markets have not moved the needle in the grand scheme of things, overall, investors can appreciate that their portfolios have been flat (but not down), and have fared much better than international equities. And while it is fair to say that going forward there is much uncertainty surrounding US equity markets, and many question whether we are in the early stages of a new bear market, within the global context, investors should bear in mind that US equity markets lately have done better than most.
Nevertheless, although taking a step back to put things in context can provide some much needed perspective, no one has a crystal ball, and no one knows for sure where the markets are headed. The most important take away for investors, regardless of where we are and what may lie ahead, is that market volatility is inevitable. Stay the course. Stay invested. Stay in the water. Timing the market is difficult, especially in abnormal market environments. Fortune favors the disciplined investor, and the greatest rewards often follow significant periods of turmoil.
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.
Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.
Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.
Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
© 2016 Envestnet. All rights reserved.