The Dow Jones and S&P 500 fell 11% at the start of this year and ascended all the way back to positive territory by the end of March. This is astounding—it’s the greatest quarterly comeback for US stocks since 1933. In fact, in a period of six months, this was the second pullback of >10%, which understandably weight heavily on investor confidence. It felt as though the markets were about to spiral out of control. And then, suddenly, we bounced right off the bottom set last August and have steadily climbed higher. There’s one main lesson to be learned from this: you can’t time the markets.
On February 11th of this year, for example, the markets bottomed out. The Dow closed at 15,660. Coincidentally, a mere two days before, during his monthly Market Update video, Ron Sloy counseled investors to remain calm and set their sights on long term goals. From there to the end of the quarter, the benchmark rose to even higher than where it started in the year: 13% upwards, closing at 17.685.
Here are the five major indexes, and their 2016 Q1 returns, below:
BarCap US Agg Bond +3.03%
S&P 500 +1.35%
Russell 2000 -1.52%
MSCI EAFE (Europe) -3.01%
MSCI EM (Emerging Markets) +5.71%
Remarkably, these indexes barely reflect just how volatile the markets were this quarter. The most prominent index here is the Barclays US Aggregate Bond. This index has somehow yielded a quarterly return greater than 3% for less than 15% of the time—even though interest rates have been declining steadily, even historically. Naturally, this return was bolstered by the erratic nature of the stock market. Now that we are passing this first quarter, it is highly unlikely for this trend to continue.
We were disappointed in Financials, Technology, and Europe this first quarter, but there is fantastic potential for all three. Definitely be on the lookout to gain participation from these allocations as we continue throughout the year. On an even better note, we have a positive indication in our portfolios as we build a slightly overweight position for the Energy sector this quarter. There’s also good value to be found in the Emerging Markets; we have noted good leadership there. In summary, we believe the markets have been set at a bottom this year—in fact, equity portfolios may soon see returns in the double digits. There will, per usual, be volatility in the markets. Those who are able to stay focused, patient, and calm will be rewarded.
It’s important for investors to chose asset allocations that match their time horizon and risk tolerance. Because, regardless of performance numbers, or interest rates, or investment themes, the most important lesson remains: you cannot time the markets. It’s understandably easy to get fidgety during the bad times—but stick to the long term goals, regardless of good or bad.
Your confidence and support is incredibly important to us. Thank you. Please contact us directly, always, if we can help you in any way.
Stoy, Dahl & Holst, Inc.