Ringing in 2016 with the worst opening week of the New Year in history did not provide much of an opportunity for investors to reflect on 2015. As we reviewed our notes from last year, we realize this commentary feels like a year-end summary of the various concerns we identified in 2015. In addition to a strong sense of déjà vu, other major news such as the crisis in the Middle East, China’s confusing manipulation of the yuan, and North Korea’s claim of testing their first Hydrogen bomb have contributed to the forces driving down markets worldwide.
2015 was extremely challenging for U.S. equity markets with the S&P 500 closing out the year in slightly positive territory. Many of the companies we track hit 52 week highs in the first half of the year but backed off considerably as concerns regarding China, the stronger U.S. dollar and lower oil prices resurfaced. Such a pullback often initiates a discussion regarding short-term vs. long-term investment decisions. We always conclude our discussions pertaining to this topic with a strong commitment to long-term investing realizing one of the factors that “plays” with our thought process is hindsight. We are only human after all.
Even though our results are often gauged by short-term intervals (quarterly, annually), as long-term investors we will continue to hold positions where fundamentals remain intact and maintain strategies that are longer term in nature but may negatively impact returns in the short run. Last year was a perfect example when we extended our defensive stance knowing economic concerns continued to linger. This cautious approach contributed to an acceptable lag behind the S&P 500 for 2015 but has been a positive for 2016 thus far.
How can we not mention the Federal Reserve’s decision in December to finally raise interest rates? Even though we saw no need to raise rates, we felt that it should be done to alleviate the market’s obsession as to when and how much. The rate on the 10 year note has stayed within the range of 2.2% to 2.4% after the announcement confirming the belief that a rate increase had already been “baked in”. In the Fed’s role to be pre-emptive against inflation, we feel their focus on employment data is as reliable as the reports our military received in confirming WMD’s in Iraq. As a firm, we have decided to refer to such data as “phantom indicators”. We observe a strong disconnect between what the Fed is monitoring and what is being reported in (weaker) corporate sales/earnings projections & GDP reports.
We do recognize a number of positive factors that currently exist in the U.S. economy, but we will maintain a defensive stance throughout 2016 as we continue to monitor possible threats to our GDP. Our focus will be on income generating investments as we reiterate our belief that dividends & interest will be a significant part of total return moving forward. Please reach out to your consultant should you have any questions pertaining to your personal situation as it relates to current market conditions.
In addition to wishing everyone a Happy New Year, Ellis Investment Partners, LLC is extremely excited to welcome Kevin Auerbach who recently joined us this year. You can visit our website, www.ellisinvestmentpartners.com, for more information on Kevin or meet him at our next RTD event in April.