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Dealing with Market Turbulence & Uncertainty

Posted on: October 9, 2015 |

Dealing with Market Turbulence & Uncertainty
John Ferguson, Principal

“The farther one gets from Wall Street, the more skepticism one will find we believe, as to the pretensions of stock-market forecasting or timing. The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking.”

-Benjamin Graham

However, we will make a forecast for a wee addition (after contractions). In November, Derek and his wife, Tiffany, are anticipating the arrival of their first child, daughter, Sloane Elizabeth Johnson. We are eagerly looking forward to the new addition to the Johnson family.

The third quarter this year came with quite a bit of unpleasant turbulence. For the 15 days beginning August 20, the daily range between highs and lows exceeded 415 points on average1. This was the worst performing quarter in the domestic markets since 20112.

INDEX
S&P 500
STOXX Europe 500
MSCI Emerging Markets
Nikkei 225
Shanghai Composite
DFA Global 60/40 Portfolio

Third Quarter Performance
-6.9%
-8.8%
-18.5%
-14.1%
-28.6%3
-5.8%4

DFA Global 60/40 Portfolio performance provided as a courtesy for comparison purposes. The DFA Global 60/40 Portfolio is a balanced portfolio comprised of 60% securities and 40% fixed income (bonds, treasuries, etc) while the other Indexes listed are comprised 100% of equity securities.

Potential items that may have contributed to this volatility included uncertainty over the timing of the Federal Reserve’s interest rate moves, government slow-downs, broad sell-offs in the Chinese markets, and a drop in Brent Crude Oil prices of 24 percent5.

Uncertainty is a dirty word in the investment community. Investors get skittish when facing the unknown. A focus on the aforementioned issues has detracted from the positive news of strong consumer spending, shrinking unemployment, steady auto sales, lower energy costs, and a healthy housing market. As investors we are told to look at the long term, but we are bombarded with media cawing over the short term. We have to overcome the noise and disruption of our senses in order to retain our long term perspective.

Since an early age, history has always been a subject that has fascinated me. We have history of the sciences, earth, animals, wars, weather, and the markets. “Those who don’t know history are destined to repeat it.” This quote attributed to the 18th Century statesman and philosopher, Edmund Burke, is as true today as it was over 200 years ago.
In 200 years of stock market history, annualized returns have been positive 71% of the time. We have witnessed nine annual declines of 20% or more and only three of these have occurred in the past 75 years6. The 200-year history informs us that markets will ebb and flow, but the overwhelming majority of times they flow in a positive direction.

200 Years of S&P Returns

 

I’ve included a recent piece from Weston Wellington along with this commentary that highlights some of the pitfalls of panic selling and market timing. Please give it a read for some additional perspective.

We find it very compelling to maintain the investment strategy that we have mutually agreed upon in creating your personal Investment Policy Statement.

Potpourri

The US department of labor is causing frustration to some advisors over new rules that are in the works which will force advisors to act in the best interest of the client7. While we have long adhered to our role as fiduciaries, stock brokers have not been subject to the same standards. After a long a losing fight by the brokerage industry this rule hopefully is about to change.

This quarter we will be re-checking that those of you who are required to take a Minimum Required Distribution from your retirement accounts are on track to do so. If you have outside retirement accounts that we are not aware of, please inform us so that we can help you plan effectively. We will make certain you are in compliance with your total required amounts.

Our best wishes to you for a delightful autumn.

Derek, John, Jon, and Stacie

1 Grocer, Stephen. ”Dow Gets in the Swing”, The Wall Street Journal, September 14, 2015.
2 Bullock, Nicole & Wigglesworth, Robin. ”Equities on course for worst quarter since 2011”, Financial Times, September 29, 2015. Accessed October 8, 2015.
3 “Markets Review & Outlook | Third Quarter”, The Wall Street Journal, October 1, 2015.
4 Performance data; Source: Dimensional Fund Advisors as of 9/30/15.
5 Krishnan, Barani. “Oil mixed on U.S. crude build, Syria; down 24 percent on quarter”, Reuters, September 30, 2015. Accessed October 8, 2015.
6 Kilgore, Tomi. “Here are 200 years of stock market performance charted as a Christmas tree”, Market Watch, December 23, 2014. Accessed October 5, 2015.
7 Prior, Anna. “Advisors Face More Rules”, The Wall Street Journal, September 19, 2015.

Investment advisory services offered through Ferguson-Johnson Wealth Management, a registered investment adviser.

This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.
Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.

The Dow Jones Euro Stoxx 50 is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. The universe for selection is found within the 18 Dow Jones EURO STOXX Supersector indexes, from which members are ranked by size and placed on a selection list.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The Nikkei 225, commonly called the Nikkei, is a stock market index for the Tokyo Stock Exchange (TSE). It has been calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1950. It is a price-weighted index (the unit is yen), and the components are reviewed once a year. Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to the Dow Jones Industrial Average.

The Shanghai Stock Exchange is one of three stock exchanges in China, and the largest in mainland China, established in 1990. The exchange issues both A-shares and B shares, but only B shares can be purchased by all investors (A shares can only be purchased by domestic investors). The SSE Composite Index tracks the performance of the exchange.

Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Down to the Wire_ Should Investors Sell After a _Correction___Page_1 Down to the Wire_ Should Investors Sell After a _Correction___Page_2 Down to the Wire_ Should Investors Sell After a _Correction___Page_3

 

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