Atlantic Capital Management

Atlantic Capital Management (83)

Friday, 22 January 2016 17:59

Why You Should Stay in Stocks in 2016

Written by

One bad trading day is not the year.

The stock market has wavered recently. A lackluster year just ended, and this year has started inauspiciously. You may be wondering ... should you really be invested in stocks right now?

Yes, you should be.

In moments like these, investors should not panic and overreact to the headlines. Instead, they should take the long view of stock market investing. Impulsive selling now can lead an investor to try and time the market later, and market timing usually leads investors to make mistakes.

Stock market investing is a long-run proposition. On a bad day, it may seem like the whole market is falling apart - but stock market performance is not measured only in days.

Consider the following statistics, which highlight some underpublicized truths:

**Even with their poor showing in 2015, stocks have advanced notably in the last three years. Across 2013-15, the Dow Jones Industrial Average gained 9.97%, the Nasdaq Composite 18.37%, the S&P 500 12.74%, and the small-cap Russell 2000 index 10.18%. The Dow Jones Internet index advanced 28.85% in those three years, the Nasdaq Biotech index 35.26%.1

**Just recently, the Dow gained 7.00% in a quarter. The Nasdaq rose 8.38% and the S&P 6.45% in the same interval. When did this happen? The fourth quarter of 2015. Yes, the same quarter that just ended with everyone talking about how sluggish the market was.2 

**The S&P 500 did lose 0.73% in 2015 in terms of price return, but its 2015 total return (including dividends) was positive – a yearly gain of 1.38%.3

And now, some long-term historical perspective:

**Through the decades, the S&P 500 has recovered very well from many of its major one-day descents. Its January 4 plunge was comparable to its August 24 drop, when it was down more than 4% during the trading session and lost 3.2% on the day to close at 1,893.21. It took the S&P just three days to recover the entirety of that big loss. Before that, there had been 54 market days in the past 32 years in which the S&P had lost 3.5% or more. There were 45 year-over-year advances after such days, in contrast to 9 year-over-year retreats.4,5

**In the 88 market years from 1928-2015, the S&P had 63 profitable years with its average yearly gain being 21.5%. So across the rough equivalent of a human lifetime, the S&P 500 has advanced on an annual basis 72% of the time.6 

**Looking at the 74 possible 15-year intervals of S&P performance occurring during 1928-2015, roughly 60% of these periods have seen the S&P post a compound return of 10% or better. During 1985-99, the index’s compound return was a striking 18.3%.6 

Yes, there have been down years for stocks, severe ones among them – think of 2008. There have also been great years, and far more positive years than negative ones. You have to take the good years with the bad. It is simply part of stock market investing.     

Those who sell when the market is down often buy back in well after the market recovers. Selling low and buying high is a formula for disappointment. Staying invested through market downturns positions you to buy quality shares when they are cheaper, and when stocks rally, you are in the market and ready to benefit. 

A particular headline or economic indicator may jolt the market on a particular day, but you are not invested for one day – you are investing for a lifetime. We have many positive signs in our economy – solid hiring, appreciable wage growth, steady consumer spending, a strong housing market – and they may lead to better corporate earnings in 2016. So be patient; better days may be ahead for the market.

        

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/15]

2 - wsj.com/mdc/public/page/2_3022-quarterly_gblstkidx.html [12/31/15]

3 - stockcharts.com/articles/chartwatchers/2016/01/do-dividends-matter.html [1/2/16]

4 - tinyurl.com/oksgh26 [8/25/15]

5 - tinyurl.com/jmams7p [1/4/16]

 

6 - marketwatch.com/story/understanding-performance-the-sp-500-in-2015-02-18 [2/18/15]

Wednesday, 06 January 2016 14:21

The Fed Makes Its Move

Written by

Wall Street rallies as interest rates rise for the first time since 2006. 

U.S. monetary policy officially changed course Wednesday. Federal Reserve officials voted to raise the federal funds rate by a quarter of a percentage point, ending an unprecedented 7-year period in which it was held near zero. Nearly ten years had passed since the central bank had adjusted interest rates upward.1

The Federal Open Market Committee voted 10-0 in favor of the rate hike. It also raised the discount rate by a quarter-point to 1.0%.1  

Addressing the media after the FOMC announcement, Federal Reserve chair Janet Yellen shared the central bank’s viewpoint:With the economy performing well, and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate, recognizing that even after this increase, monetary policy remains accommodative.”2 

Equities started the day with minor gains, then advanced further. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite respectively advanced 1.28%, 1.45%, and 1.52% Wednesday. The yield on the 2-year Treasury hit a 5-year high of 1.021%. Gold rose $15.20 to close at $1,076.80 on the COMEX.3,4

As a December rate increase was widely expected, the real curiosity concerned the following press conference. Would Janet Yellen offer any hints about monetary policy in 2016? 

She offered one: she said she doubted that any interest rate hikes in 2016 would be “equally spaced.” Aside from that remark, no new insights emerged; Yellen reemphasized that the Fed does not plan to raise rates aggressively.2

Investors gained more insight from the Fed’s latest dot-plot chart, which expresses the Federal Open Market Committee’s opinion on where the benchmark interest rate will be at near-term intervals. The new dot-plot forecasts four rate hikes during 2016, with the federal funds rate climbing toward 1.5% by the end of next year (the median projection is 1.4%).5

The dot-plot revealed benchmark interest rate targets of 2.4% for the end of 2017 and 3.3% for the end of 2018, slightly lower than the previously stated targets of 2.6% and 3.4%.5

That corresponds with the consensus of analysts surveyed by CNBC. Their expectation was for three quarter-point rate hikes across 2016, taking the federal funds rate toward 1%.6 

Some analysts wonder if the next rate hike might occur at the FOMC’s March meeting. Nothing could be gleaned about that from Yellen’s press conference or the new FOMC announcement.6

With more tightening seemingly ahead, what is in store for the bull market? Bears may want to wait before making any gloomy pronouncements. While rising interest rates are commonly assumed to impede a bull market, this is not always the case. In fact, the S&P 500 advanced 15% during the last round of tightening (2004-06).7

Could higher interest rates decrease inflation pressure? That is a distinct possibility, and that would hurt wage growth and business growth. The Fed would like to see inflation in the vicinity of 2%, yet the Consumer Price Index is up only 0.5% in the past 12 months, held in check by a 14.7% annualized retreat in energy prices and a 24.1% annualized fall in gas prices. On the other hand, the Core CPI (minus food and energy prices) is up 2.0% in the past year.6

The Fed may have made just the right move at the right time. If it had waited until 2016 to tighten, a collective “uh-oh” might have been heard from pundits and analysts, with comments along the lines of “Does the Fed know something about the economy that we do not?” 

As JPMorgan Private Bank chief U.S. investment strategist Kate Moore told CNNMoney this week, “Keeping interest rates at zero is enforcing the idea that the U.S. economy is fragile.” Years of easing certainly helped the bull market, though: Wednesday morning, the S&P 500 was 202% above its March 9, 2009 bear market low.2,7    

Ultimately, the central bank felt the time had come for tightening. At Wednesday’s press conference, Yellen commented that data had led the Fed to raise rates – it had not made its move in response to any shifts in public opinion. “Consumers are in much healthier financial condition” than they once were, she remarked. The rate hike certainly expresses confidence in the economy, which could strengthen further in 2016.2         

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.

1 - marketwatch.com/story/federal-reserve-lifts-interest-rates-for-first-time-since-2006-2015-12-16 [12/16/15]

2 - blogs.marketwatch.com/capitolreport/2015/12/16/live-blog-and-video-of-the-fed-interest-rate-decision-and-janet-yellen-press-conference/ [12/16/15]

3 - cnbc.com/2015/12/16/us-markets-fed.html [12/16/15]

4 - reuters.com/article/usa-bonds-idUSL1N1452HC20151216 [12/16/15]

5 - marketwatch.com/story/federal-reserve-dot-plot-still-signals-4-interest-rate-hikes-in-2016-2015-12-16 [12/16/15]

6 - latimes.com/business/la-fi-federal-reserve-rate-hike-20151216-story.html [12/16/15]

7 - money.cnn.com/2015/12/15/investing/stocks-markets-fed-rate-hike/ [12/15/15]

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