A powerful and sustained relief rally in US stocks has wiped out the sharp losses that characterized the start of 2016. Both professional and amateur stock market forecasters were understandably pessimistic in the face of elevated volatility. But, as is so often the case, the selling was exhausted and sentiment shifted. Our most important job in this challenging investment environment to make sure that temporary market weakness doesn’t somehow translate into permanent impairment of portfolio value.
A position in bonds was effective as ballast against stock market volatility during the aforementioned period. However, what with the yield on the 10 year US Treasury bond falling below 2% again, bonds aren’t cheap. The mantra of “lower for longer” is still in place for interest rates, especially outside the US. Uncertainty regarding global economic conditions has even put the goal of the Federal Reserve to normalize borrowing rates on hold for now.
In this setting, cash continues to yield almost nothing. In theory, a weak return on cash stimulates spending and investment. But the US consumer is still haunted by the Great Recession of 2008-09 and is busy paying down remaining debt. The overall financial fitness of consumers is hotly debated, especially by presidential candidates as they try to win votes. Our take is that although many consumers have repaired personal balance sheets, they remain cautious and psychological wounds from the past are not fully healed.
As we head deeper into spring, we keep a close eye on corporate earnings, the actions of the Federal Reserve, and the intersection of politics and investing. The long awaited Department of Labor ruling on a uniform fiduciary standard regarding investment advice is of particular interest. It serves as confirmation that we were ahead of our time when we founded ASG on the principle of the fiduciary standard of client care over the weaker suitability standard common among broker-dealer firms and insurance companies.
We welcome your calls, texts, and emails as the tax filing deadline approaches. Although we are painfully aware of the complexity of US tax law, the tax return does offer the benefit of a detailed view of your finances. With this information top of mind, now is a good time to set up a meeting with us.
Asset Strategies Group, LLC / an Independent Investment Advisor Firm