Financial Market Comment

by Jim Kuntz on February 29, 2016

As February winds to a close, the financial markets continue experiencing higher than normal levels of volatility. Since our last update in January, global stock markets have ridden a rollercoaster mostly tied to the ups and downs of oil and gas prices.

The significant decline in energy prices have certainly resulted in earnings setbacks for much of the oil and gas industry, which makes up 4.3% of the total United States economy. The large majority of rest of the American economy is benefiting from the lower cost of crude oil, gasoline, heating oil and jet fuel. As we mentioned in our letter last month, these lower energy prices will help spur growth and lessen the likelihood of recession in 2016. We have been encouraged to see recent improvement in consumer spending, broader credit growth, lower unemployment and positive wage growth. Additionally, the recent dramatic volatility in the markets has lessened the likelihood Janet Yellen will increase interest rates to the extent she had suggested in December.

On the other hand, the U.S. dollar’s continued strength has been a headwind to S&P 500 earnings. The move to negative interest rates by Japan and several Northern European countries, together with the nature of this year’s presidential election creates uncertainty. As we all know, financial markets dislike uncertainty. The beneficiaries of the recent volatility have been sovereign government bonds, and for the first time in several years, gold. This “flight to safety” has pushed U. S. 10 year Treasury yields lower and boosted gold prices.

The contradictory influences of these many factors, suggests to us that the financial markets are not yet out of the woods.

Low energy prices are already reducing oil industry spending. This historically has decreased supply, which is necessary before energy prices can stabilize and recover. Our research anticipates this occurring in the second half of the year. Future stability in energy prices will remove one of the major uncertainties and create a more benign environment for the markets. In a world where central bank policy is less accommodating and less potent, volatility is likely to remain above average throughout the first half of 2016.

Pacific Wealth Management investment portfolios remain very well diversified and built to effectively weather these volatile markets. Please feel free to call us if you have any questions or comments.

 

This commentary contains forward looking statements and opinions. These opinions may not develop as predicted. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.

Financial Market Comment

by Jim Kuntz on January 19, 2016

We hope you and your families had an enjoyable holiday season and were able to find time for some relaxation and fun.

The financial market volatility in 2015 was challenging, but the start to 2016 has been decidedly worse. Stock markets around the world have declined sharply to begin the year with multiple triple-digit down days. The recent steps by the People’s Bank of China to devalue their Yuan (Renminbi) currency, along with the slowdown in China’s rate of growth, have sparked concerns China will drag the world economy into recession.  The disarray in the Chinese stock market largely overwhelmed a better-than-expected jobs report here in the U.S.A. Our strong employment report reaffirmed the outlook for steady U.S. economic growth, even against the backdrop of global uncertainty.  As we expected, energy prices have moved lower, but our research continues to forecast higher oil and gas prices over the next couple of years.  The world today is spending $2 Trillion less on oil and gas than it was two years ago. Lower energy prices have historically been a positive for consumer service-focused economies, like the United States’, and savings on energy costs are likely to encourage consumer spending and future growth.

The stock market’s decline has been driven by concerns regarding the recent spate of contradictory economic data. This has precipitated an extreme level of negative sentiment. While China has been the focus of investor anxiety, many short-term traders have extrapolated some of the negative news to conclude a Chinese recession is imminent. The Chinese government is transitioning from a nation with under-developed institutions to a market-based system more reliant on consumer-oriented growth.  It is unlikely the communist Chinese leadership will not employ every tool at their disposal to maintain a growing economy. As their policies mature and investors gain confidence that 1.4 Billion Chinese consumers are on sound footing, global markets can begin to recover from the year’s early losses.

The news that global growth is slowing, along with the financial market turmoil, lessens the likelihood Janet Yellen and the U.S. Federal Reserve Bank will raise interest rates aggressively in 2016, as they had indicated just last month. The removal of this interest rate uncertainty should be a positive for the markets.

For some time we have been concerned about the potential for a stock market decline like the one we are experiencing. This outlook led us to under-weight stock allocations in our diversified portfolios to effectively weather this volatility. Unsettled markets like these will create opportunities for the cash we have recently raised. As always, the preservation of our client’s lifestyle and wealth, over the long term, remains our focus.

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DEL MAR, CA, November 25, 2014 – Pacific Wealth Management®, a Del Mar, CA-based independent wealth management firm providing investment management services to preserve and grow wealth, is pleased to announce another successful and sold-out National Multiple Sclerosis Society Dinner Gala Auction on November 22nd. This 28th Annual MS Dinner Auction raised more than $500,000 toward creating a world […]

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