Download Market Commentary George E Steinemann, CFP® James V

Market Commentary
George E Steinemann, CFP®
James V Saccardi, AIF ®
Trust Investment Management
November 2, 2015
MARKET RETURNS as of October 31, 2015
October
S&P 500 (US large cap)
Russell 2000 (US small cap)
Barclays Aggregate US Bond
8.4%
5.6%
0.0%
YTD
2.7%
-2.5%
1.1%
12 mos.
6.4%
1.9%
1.8%
October
MSCI EAFE (large cap foreign)
MSCI Emerging Markets
iBOXX High Yield Index
7.8%
7.1%
2.8%
YTD
2.5%
-9.2%
0.2%
12 mos.
1.5%
-13.5%
-1.8%
OCTOBER Moderately crummy economic news, which could have been a lot worse, fueled October’s
powerful rally, consistent with the seemingly Orwellian axiom, “bad news is good news,” at least when it
comes to the stock market. The data spurring the market included a weak employment report as well as the
third quarter GDP number that showed a slowing economy with just 1.5% growth. This is in stark contrast
to the 2nd quarter’s robust 3.5% gain. Let the bad times roll!
CO-DEPENDNCE AND DYSFUNCTION As for the Fed’s much-anticipated interest rate increase, that august
body keeps singing the same old song, which calls to mind a musical reference that helps frame the market’s
current relationship with our central bankers. British singer-songwriter and Member in The Order of the
British Empire, Joan Armatrading, sings of an abusive, dysfunctional relationship in “I Love It When You Call
Me Names.” The lyrics describe a couple’s bizarre synergy not unlike that among the stock market, the
economy, and the Federal Reserve.
The worse the economy performs, to a point, the more stocks benefit, because the Fed continues its easy
money policy, stimulating the economy by providing cheap financing, which “artificially” props up stocks.
This is one reason the “rich get richer,” a quaint colloquialism now labeled “The Uneven Distribution of
Wealth.” Persistently low interest rates reward those with significant investments in stocks, but punish
those living on fixed incomes (CD and bond holders). But like the couple in Ms. Armatrading’s song, there is
a point where that dysfunction becomes even too great for the co-dependent partner to bear. That point, for
the economy, is when weak growth impacts corporate earnings, increasing the likelihood of recession.
Since the typical shareholder’s reaction to the slightest hint of the Fed normalizing rates has been to sell,
given the market’s recent strength, perhaps forces other than the Fed are propping up stocks. The
Quantitative Easing program (QE) wound down between February and October, 2014, during which time the
S&P 500 rose 7.4%. A year later, by October 2015, it had gained another 3.8%. The Fed’s eventual first step
on the road to normalizing interest rates may well spur a negative market reaction, which could mimic the
recent September sell-off and subsequent recovery. As we try to monitor and react to Fed policy, we will
keep in mind the lyrics from yet another popular ‘70’s song, “Roadhouse Blues,” written and performed by
that prophet of the apocalypse, Jim Morrison: “The future’s uncertain and the end is always near.” At least in
his case, he was correct on both counts.
GENERATION GAP With a thirty year age difference between the oldest and youngest Presidential
candidates, besides their obvious political differences, they may also face a language gap. While this might
seem insignificant, communicating across the generation gap becomes increasingly important with regard to
cultural understanding and financial matters. For example, we learned this summer from our nineteen-yearold intern that both “dosh” and “gaup” are monetary references, usually cash. Who knew? Yet, when
referencing the email “cc” (“carbon copy”) and “bcc” (“blind carbon copy”) fields, our intern, and Ivy League
student no less, had never heard of carbon paper. More recently, we realized most people under 30 speak of
“Drinking the Kool-Aid,” but are clueless as to its macabre origin. While these examples seem trivial, the
language barrier could become a bone of contention as generations overlap with the changing demographics
of the workforce. So if you don’t know a Kardashian from a Karastan, don’t feel too bad. You might want to
take time to both learn from and enlighten those younger workers around you, and we will all benefit.
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