Broker Check

August 2015 Month In Review

Spoiler Alert!

I hate when I plan to see a movie and before I can get to the theatre, some acquaintance spills the ending for me. Takes all the excitement out of seeing it for the first time. Some surprises are better left a surprise. Others…not so much. Consider this month in review a spoiler alert. As of close of business Friday (8/28/2015) the month-to-date returns of the S&P 500 and the US Agg Bond Index was -5.25% and -0.08% respectively1. What that means is that most every portfolio, risky or not, will most likely see a negative performance for the month in your statements.

If you currently are in one of our actively managed models, you most likely have seen numerous emails communicated over the last few weeks on tactical shifts, and reasons the market is doing what it’s doing. For the rest of you we put out a mass email on Monday 8/24, detailing the current health of the U.S. and global markets and economy. In addition we have had countless conference calls with our research team in Boston, or local group at AGH Wealth Management, and other relationships we have with researchers. The short and sweet of it is that we are NOT in a recession in the U.S., China’s slowdown in growth will not impact all global markets, and this is normal historical market volatility in bull markets. If for some reason you missed the email, it may have gotten caught in your junk inbox. You can search for the email as that is where many of our mass communication emails come from (including this one).

It’s been a long time since we’ve seen a correction 10% or greater, however this is a very common occurrence in the annual movements of the stock market. In fact, prior to the recent volatility, 2013 to 2015 has seen the least downward volatility since 1992 to 19942. In fact every year the stock market has ended positive since 1995 the average largest intra-year decline prior to 2013 was -13.1%2. So the recent volatility in the market is just under par for the course, for an average intra-year decline of positive-ending stock markets since 1995.

If we continue to look at the economic leading indicators that relay to us whether or not we are in a recession, or approaching a recession by being in the 4th stage of the economic cycle (the Aging, or Late Cycle), we can confidently say that nothing is sounding the alarm. Valuations were really the warmest signal and with our recent minor correction we saw in August, those indicators have signaled a more favorable valuation of the overall market (measured by Forward P/E ratio). In fact, based off of forward P/E ratio metrics, stocks are currently as, or more favorable than bonds3! Add in a positive GDP revision and good reports from the housing market, signaling positive 3rd Quarter GDP, and there’s really very little to fear about the recent volatility4.

So what does all this turmoil mean to you and me? Well first of all it means that right now is a fantastic time to add money to your portfolio. Volatility has not been this high since the summer of 20115. Volatility alone is NOT a measure of the future direction of the markets or the economy. So if things are looking good fundamentally long-term and you see a spike in the market volatility that should signal as an opportunity inside a bull market, rather than a shift to a bear market. Second, it means that diversification inside your portfolio, and active management should show more resilience to this as we break out of the rout. Whether you are paying for active management, or you are in a more passive portfolio, diversification is becoming more and more important as we move through the cycle.

If you would like more information about China as it relates to emerging markets or their currency and the IMF; or if you would like more information about oil, the dollar and the other headline news we have multiple resources put out by our research team in Boston and would be happy to pass them on to you.

For now, grab some popcorn and enjoy not being surprised that your statements are (most likely) down this month. If they are just remember, you cannot experience the long-term growth you wish for without watching the month to month statements signal down every now and again. That all being said, we are very happy to take your phone calls to discuss your specific portfolios and how we can take advantage of the opportunities from an individual perspective.

Best Regards,




1Taken from Morningstar Office
2Measured by averaging the largest point to point drop in the stock market over three consecutive calendar years. See JPMorgan’s Guide to the Market 3rd Quarter 2015, Page 13.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.

The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Investing involves risk, including the loss of principal.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.