Download Quarterly Investment Briefing November 12, 2015

Quarterly
Investment Briefing
November 12, 2015
Clayton T. Bill, CFA
Stephen J. Nilles, CFP
Capital Market Returns Current & Annualized
Period Ending September 30, 2015
U.S. Equities
Non-U.S. Equities
Emerging Market Equities
Fixed Income
Real Estate
15
13.3
12.5
10
Rate of Return %
5
2.9 2.7
1.1
1.2
7.5
6.2
5.1
3.8
1.7
3.1
6.9
4.8 4.6
4.7
3.3
0
-0.5
-1.6
-5
-10
-5.5
-6.3
-7.3
-4.8
-9.5
-10.3
-15
-20
-2.9
-4.1
-15.0
-19.1
-18.1
-25
3Q 2015
YTD
Source: Russell, Barclays, Bloomberg and FTSE NAREIT
1-YR
3-YR
5-YR
10-YR
2
Market Volatility and Pullbacks in
Historical Context
Number of 5% drawdowns experienced each year
Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management
3
U.S. Equity Rebound Surprises
Market Timers
Source: Russell
4
Corporate Earnings: Set to Improve?
Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management
5
Benign Inflation Helps
U.S. Equity Valuations
Low but positive levels of inflation help support higher than average equity valuations, as
these environments are typically accompanied by low interest rates. The Federal Reserve
has attempted to utilize monetary policy to generate inflation towards its target of about 2%
with mixed results.
Source: Strategas,
6
Non-U.S. Valuations Fall,
Become More Attractive
Developed and emerging-market equities experienced multiple compression in Q3 due to
weak equity performance. Valuations of most developed and emerging markets remained
lower than U.S. multiples and fell further below long-term averages.
Source: Fidelity
7
First Fed Rate Hike Not Typically the
Start of a Downturn
Historically, the first interest-rate hike in a Federal Reserve tightening cycle occurs during the
mid-cycle phase, is a sign that the economic expansion is strengthening, and rarely presages
an abrupt move into the late-cycle phase. Typically, economically sensitive assets such as
equities have performed well in the period immediately after the initial hike.
Source: Fidelity
8
Domestic European Recovery
Outweighs Foreign Drag
As evidenced by continued improvements in economic sentiment, Europe’s domestic
recovery continues amid supportive monetary policy and pent-up demand. Exports are
more important for the euro-area countries than the U.S., but the majority of those
exports go to other European economies, with a relatively small share destined for China.
Source: Fidelity
9
China is Slowing, not Collapsing
Important Driver of World Growth
Source: Russell
10
Emerging Markets Have Rebounded From
Past 20% Pullbacks
Source: Russell
11
Turning Stock Volatility Into
Tax Assets
Source: Russell
12
Consider Investment Decisions Based on
Probabilities – Not Possibilities
Source: Russell
13