Articles In 2016

DATE:            January 1, 2017

TO:                 POINT VIEW CLIENTS

FROM:           David G. Dietze, JD, CFA, CFPTM Founder and President

 

I.         2016 Fourth Quarter Performance

·         Equity markets rallied strongly in Q4, up nearly 5% following Trump’s surprising victory and the Republican sweep in the House and the Senate.  The market rallied on hopes of tax reform, deregulation, and infrastructure spending.  Small cap stocks in particular were the biggest beneficiaries with the Russell 2000 up nearly 14% from the election.  The post-election surge capped the Dow’s best year since 2013, up 16.5% on a total return basis, despite getting off to the worst start for a year ever, down 6.2% in the year’s first week.

·         The bond market and gold, typically the safest asset classes, sold off hard. The yield on the US 10 year Treasury rose from 1.85% before the election to 2.44% by year end, while gold prices slid nearly 10%. With the Fed raising rates, and the Republicans looking for fiscal stimulus to jump start the economy, bond investors are pricing in a stronger economy.

 

   MARKET DATA

Fourth Quarter

2016

2016

S&P 500 (dividends reinvested)

3.83%

11.96%

NASDAQ (dividends reinvested)

1.66%

8.87%

60/40 S&P 500 / TX-EXEMPT SECURITIES BLEND

0.85%

7.32%

DOW JONES INDUSTRIALS (dividends reinvested)

8.61%

16.34%

INTERNATIONAL STOCKS (MSCI EAFE IX ID)

-0.77%

0.96%

TAXABLE BONDS (Barclay’s 1-3 Yr Gov’t/Credit)

-0.39%

1.28%

TAX-EXEMPT SECURITIES (Barclay’s Muni Index)

-3.63%

0.25%

 

·         The Fed raised rates a quarter point in December, only the second time in ten years, and the only hike in 2016 despite its prediction of four rate hikes. Now the Fed is signaling three hikes in 2017.

·         Corporate earnings were flat in 2016, still buffeted by weak year over year energy prices, more Dollar strength, and uncertainty overseas.  Following 2016’s surging stock prices, Factset reports that stocks now trade at 21 times trailing earnings, above the average 16 times over the last decade.

·         2016 was a value investor’s delight.  Crude oil prices collapsed to a 14 year low in February, but turned right around to nearly double by year end, powering the energy sector’s market leading 24% gain for the full year.  Chevron was the Dow’s second best performer, up 37%, trailing slightly Dow leader Caterpillar’s 43% gain, while Exxon climbed 20%.

·         Financials were the second best performer in 2016, up over 20%.  An index of bank stocks plunged nearly 24% by mid-February.  They clawed back 34% by election day, and then soared an additional 22% post-election.  Investors spy higher rates, a lighter regulatory touch, and an improving economy as reasons for bullishness.  In the Dow, JP Morgan and Goldman Sachs each advanced nearly 35%,

·         Healthcare was the worst performing S&P 500 sector in 2016, down close to 4%. Headline risk on drug prices, the blocked merger of Pfizer and Allergan, and the uncertainty of what Obamacare repeal could mean, has weighed.  Healthcare valuations have improved and undoubtedly demand remains robust, although the incoming administration has not tipped its hand on the exact regulatory changes it seeks.

·         The slight drift higher in interest rates over the course of 2016 masked incredible volatility.  The ten year Treasury dropped to a record low of 1.37% in July on the back of Chinese and Brexit concerns, only to soar to 2.6% in December, as investors calculated that Trump’s policies would spur growth and possibly inflation.  The more risk you took last year, the better your return, with junk bonds scoring a near 17% profit.  Munis barely budged, up 0.2%, as potential loss of their tax exempt status added to the higher rate concerns.

PREVAILING YIELDS AS OF:

FIXED INCOME ASSET

12/31/15

03/31/16

06/30/16

09/30/16

12/31/16

US Government 10 Yr. Note

2.27%

1.78%

1.49%

1.61%

2.45%

5-Year Certificate of Deposit

0.85%

0.83%

0.81%

0.81%

0.82%

Money Market

0.00%

0.06%

0.10%

0.14%

0.23%

 

II.           Looking Forward

Longer term we remain quite bullish.  Shorter term there is reason for caution.  Valuations are elevated.  The Dollar is rising, which can weigh on exporters.  Optimism is up.  Investors are negative on alternatives like fixed income.  Yet, much of the rosy outlook is dependent on the implementation of Trump’s policies, like regulatory reform, tax cuts, and fiscal stimulus. We continue to counsel diversification, while taking advantage of the inevitable volatility to add to attractive names and sectors like energy, healthcare, and financials.  We are also intrigued by the attractive valuations overseas.

 

III.      Enclosures

The enclosed shows the recent performance of all of your Fidelity accounts (if under management for more than 3 months and fully invested by Point View), and your investment advisory invoice. Fidelity’s 1099 will include all realized gains and losses, along with potentially deductible investment advisory fees, foreign taxes, and ADR fees, and all information about sales.  1099s are issued in late February.  Please contact Claire Toth if you or your accountant has any questions.

 

 

Article Index

To Be a Better Investor, Be More Rational David Dietze, 12.6.16.

The Post-Election Market - The Road Ahead! David Dietze, 11.14.16.

Brexit, American Style: How to Play It!  David Dietze, 11.9.16.

Good News for New Jersey Retirees! Claire Toth 10.17.16.

Hurricane Season is Upon Us, Should You Hunker Down Your Portfolio? John Petrides, 10.5.16.

Trust Assets - What's the Plan? Donna St.Amant, 10.5.16.

401(k) Plans - Your Lifelong Path to Retirement Elaine F. Phipps, 9.29.16.

Planning With Your Tax Return Claire Toth 9.6.16

Three Great Investment Opportunities Despite Record High Indices David Dietze, 8.24.16

How the Political Campaign May Affect the Markets David Dietze, 7.19.16.

2nd Quarter 2016 Results
Point View Wealth Management's, 7.14.16.

Healthcare Stocks Under Pressure: Opportunity Knocking? Donna St.Amant, 6.29.16.

Financial Stocks - Finding Opportunities Amongst the Ruins
 Elaine Phipps, 6.24.16.

Redefining Emerging Markets
John Petrides, 6.17.16.

Picks for 2016's Back Nine
 David Dietze's, 6.6.16.

Your Financial Legacy: More than Dollars and Cents
 Claire Toth, 5.2.2016.

1st Quarter 2016 Results
Point View Wealth Management's, 4.8.16.

Keep Calm and Invest On
Donna St.Amant, 4.5.16.

Going Global - Concentrate on Company Not Country
Elaine Phipps,4.5.16.

Fight Market Malaise with These Four Strategies
David Dietze, 3.29.2016.

Money Mom Tours Colleges
Claire Toth, 3.23.2016.

How to Ride on the Roller Coaster of...Bonds?
John Petrides, 3.18.2016.

Stocks' Rocky 2016 Start Yields Blue Chip Bargains: Scoop 'em Up
David Dietze, 3.17.2016.

Achieving a Better Life Experience
Claire Toth, 2.5.2016.

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