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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.

Pacific Wealth Management Market Comment

by Jim Kuntz on December 23, 2014

Last December, Ben Bernanke announced the Federal Reserve Bank would begin winding down their latest and largest round of U.S. Government bond market manipulation, before 2014’s year-end. This created considerable nervousness for investors as American stock market performance had clearly become dependent on the controversial policy. As we highlighted in previous posts, our central bank was effectively pulling the punch bowl away from the party. On cue, stocks retreated in January, then rallied back to even by March, trended higher into late summer, erased their gains completely by mid-October and were briefly under water for the year, then rose again to new highs in early December. Currently we are experiencing another period of volatility, precipitated by the steep decline in oil and gas prices.   Gold is finishing the year mostly flat, while interest rates have moved significantly lower. The 10 year U.S. Treasury bond began the year yielding over 3% and is now hovering around 2.21%. Interest rates have been driven lower as capital moved out of stocks and into the safety of bonds with the stock market volatility described above. This was contrary to the expectations of most investors anticipating interest rates to rise in 2014.

Energy prices are plunging, primarily because the world’s supply of oil has exceeded demand. This has been the direct result of the U.S.A.’s definitive march toward energy independence. American oil production has almost doubled in recent years and that larger supply, combined with a slowing global economy, is driving down prices. Last spring the U.S. became the largest producer of oil and gas in the world, surpassing Saudi Arabia. Although lower energy prices are not favorable for oil industry profits, the savings at the gas pump (at prices we have not seen since 2010) along with less expensive winter home heating costs, make more money available for the average American consumer to spend. Our slow-growing U.S. economy looks relatively good when compared to Europe, which is teetering on the brink of another recession, and China whose rate of growth is slowing. Despite China’s slower growth rate, the International Monetary Fund announced last month the Chinese have now overtaken the U.S. as the world’s largest economy, in overall size. On an economic output per capita measurement, China is still only a tenth of the American economy, due to the significant size differences in our populations.

Looking forward into 2015, Pacific Wealth Management expects the higher level of volatility we experienced in 2014 to continue. Most economists expect the U.S. to grow at a slightly faster pace next year and Wall Street is forecasting the Federal Reserve will begin raising interest rates by mid-year. The financial markets are likely to become more nervous when our central bank president, Janet Yellen, formally ends monetary easing and begins increasing those short-term rates. Meanwhile, with the global economy slowing, the European Central Bank and Bank of Japan are heading toward more financial market manipulation, a-k-a, easing. As Putin is likely to continue his antics in Ukraine/Russia, along with a boiling Middle East, geopolitical tensions could increase and rattle global demand, slowing down economic growth everywhere.

Our conservative, well diversified, investment strategy is prudent during these unprecedented times. We remain focused on preserving our client’s wealth. Please feel free to contact us if you have any questions regarding the financial news events of the day.

With the holidays upon us, and 2014 quickly winding to a close, we hope you and your families are healthy, happy and planning some time with one another over the next few weeks. Best wishes for an enjoyable holiday season and productive 2015.

Mark, Jim, Justin and Justin
Pacific Wealth Management

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