Since January of 2015 U.S. stock investments have experienced some significant ups and downs and, now 18 months later, are sitting today at around the same levels. As we described in our last commentary, the financial markets in 2016 have wrestled with conflicting expectations for growth and inflation. Globally, economic growth has slowed while the central banks of Europe and Japan continue to print money and buy their own government bonds in the hopes of creating stronger economic growth and stubbornly elusive inflation. As anticipated, the near term market outlook remains quite cloudy, with anemic corporate profit growth, the imminent Brexit vote that will decide if the UK will leave or remain in the European Union, in addition to a very unsettling presidential election landscape in the U.S. All these factors continue to create a lot of uncertainty for investors.
We have discussed on numerous occasions how the financial markets become uncomfortable with uncertainty and the resultant increased levels of volatility. U.S. Treasury bonds and Sovereign Government bonds have been the “safe haven” place to hide from the recent drama and uncertainty. Throughout the world today there are approximately $10 Trillion of sovereign government bond debt with negative interest rates. The negative interest rates in European and Japanese bonds have encouraged more investment into our relatively higher yielding U.S. Government bonds. These conservative bond investments have been appreciating in value again this year and delivering healthy returns, as U. S. bond yields move lower. 10 Year U.S. Treasury bond yields are down to levels we last saw in 2012. Gold has also been a beneficiary of this year’s uncertainty regarding the global economic outlook. Recently gold has been consolidating its gains from earlier in the year.
The world economy has been resilient to shocks over the past several years. Recent reports on energy demand indicate the global economy should continue to expand slowly. This increasing global demand for oil and gas has been helped by countries like India, which has overtaken China as the main source of oil demand growth. India is expected to surpass Japan in 2016, becoming the world’s third largest consumer of energy behind the United States and China. Our research suggests oil prices are likely to be above $50/barrel at year-end. Our energy infrastructure investments in pipelines and storage facilities are benefitting from the rebounding oil and gas prices and performing well this year.
As the leading economy in the world, the U.S. is benefitting from the solid underpinnings of low unemployment, wage growth and consumer balance sheets that have been boosted by the improvement in home prices and stock market values. Household spending and retail sales, in our consumer services focused economy, are increasing. Despite tepid manufacturing industry performance and declining business spending, most economists expect the American economy to continue growing at around 2% this year. Many of the present uncertainties should be resolved as we move into the latter part of 2016. Investors are likely to see easier year over year corporate profit comparisons together with resolutions to the concerns we noted above, especially clarity on the next President of the United States.
We hope you have plans for some fun in the sun this summer. Please call us if you have any questions regarding your wealth planning or the financial markets.
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.