2016 April Financial Market Update

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1 Charles Sherry Director, Institutional Education Group Blue Ocean Global Wealth 51 Monroe St., Plaza West 06 Rockville, MD Tel: April Financial Market Update April 30, 2016 Running in Place Following a rough start to 2016, shares bottomed in February and posted a respectable rally heading into spring. While the themes that helped stabilize markets remain in place, we still haven t seen a strong catalyst that would fuel a rally past last May s all-time closing high. A review of Figure 1 illustrates the two 10%+ declines the S&P 500 has experienced over the last year. While the steep downward descent of both selloffs may have unnerved some, stock market corrections of at least 10% are not uncommon during economic expansions. S & P I N D E X 2,150 2,100 Prior all-time peak Fig. 1 2,050 2,000 1,950 1, % from 1,850 all-time peak -14.2% from 1,800 all-time peak 12/31/2014 3/31/2015 6/30/2015 9/30/ /31/2015 3/31/2016 DATA SOURCE: ST. LOUIS FEDERAL RESERVE LAST DATE:

2 According to RBC Capital Markets, A look at market history reveals that corrections, as distinct from outright bear markets (a 20% decline), are too unpredictable and play out too quickly to allow most investors to sell at the highs and buy back profitably at the lows. Pullbacks of 10% or more have occurred 13 times over the last 21 years, according to Charles Schwab, with an average decline of nearly 16%. Despite these setbacks, stocks rose in most years, with positive returns in three-fourths of years and an average gain of approximately 8%. Put another way, market timing is nearly impossible. Yes, it seems like common sense, but there are the socalled experts and they can sound quite authoritative that make claims to the contrary all the time. It remains to be seen whether market volatility is behind us, but the key to long-term success is having and adhering to an investment plan a roadmap that explicitly defines your goals and lays out investment parameters. If your situation has changed, let s talk. We may need to adjust your plan. Index April Return %* 2016 YTD Return % DJIA NASDAQ Composite S&P 500 Index FTSE Developed ex North America Index Bond Yields Yield* - % a/o Apr 29, 2016 Yield - % a/o Dec 31, month T-bill year Treasury year Treasury year Treasury Commodities Apr 29 Price, Monthly Change* Year end 2015 Oil per barrel 5 $ $37.07 Gold per ounce 6 $1, $1, Sources: U.S. Treasury, MarketWatch, St. Louis Federal Reserve, CNBC *Monthly: March 31, 2016 April 29, 2016 In the meantime, let s look at action in April. Q1 earnings trough? While many factors can sway investor sentiment over the shorter term, earnings and expectations for earnings are the lifeblood of stocks over the longer term.

3 By month s end, Thomson Reuters estimated that overall profits for S&P 500 companies are expected to decline 5.7% from a year ago. This includes the 62% of S&P 500 firms that have reported so far. Not surprisingly, the energy sector is the biggest overall drag on earnings. Remove energy and profits would improve to -0.3%. But that s still far from impressive, as seven of the ten major industry sectors are forecast to post numbers below those of a year ago. For investors, however, there are some silver linings. The first most companies are exceeding a very low hurdle. According to Thomson Reuters, of those firms that have already reported through the end of April, 75% have posted profits ahead of analyst forecasts. Second, while the stronger dollar remains a headwind, some of the resistance has faded for the large multinationals (Wall Street Journal). You see, a rise in the dollar means that sales made in other countries must be translated back into a stronger dollar. But the recent stability in the dollar has been a relative plus. Third, analysts continue to cautiously predict that Q1 will be the trough for profits, and expectations of a return to earnings growth by Q3 have been a tailwind for stocks see Figure 2. Conversely, the slowdown in earnings growth that asserted itself in Q and subsequent earnings recession have played a role in lackluster market returns over the last year. Fading recession fears S&P 500 Earnings - percent change from one year ago Percent Actual Q1'13 Q3'13 Q1'14 Q3'14 Q1'15 Q3'15 Q1'16 Q3'16 Data Source: Thomson Reuters Last Date: Fig. 2 Forecasts The economy is not firing on all cylinders, and preliminary data from the U.S. Bureau of Economic Analysis showed that Q1 Gross Domestic Product (GDP) expanded at an annual pace of just 0.5%. Nonetheless, fears at the beginning of the year the economy was set to slip into a recession have faded.

4 About that weak first quarter we ll get two more revisions, and recent studies suggest that seasonally adjusted estimates over the last 25 years for Q1 GDP have been unusually weak (Federal Reserve Bank of San Francisco). Let me explain. Economists seasonally adjust data so we get an apples to apples comparison of monthly and quarterly numbers. In the end, it s a wash, but these complex models are not be infallible, which may have exaggerated Q1 weakness. Job growth has been moderate and weekly jobless claims are at historically low levels (Dept. of Labor), suggesting there may be anomalies in the process used by economists. Whether that is the case or not, most leading indicators suggest modest growth remains on tap. Fed reluctance Another support for shares the Federal Reserve is in no hurry to pull the rate hike trigger. The Fed did announce its first rate increase in almost a decade last December, but the statement that followed the April meeting did little to signal policymakers are intent on hiking when they gather in June. Sentiment on the Fed may shift between now and then, but a reluctance to increase interest rates, even gradually, has soothed short-term investor anxieties. Oil s recovery It s no coincidence the February 11 low in the S&P 500 coincided with the 2016 low in oil prices (St. Louis Federal Reserve). While the correlation between oil and stocks hasn t been as tight in April (St. Louis Federal Reserve), rising oil has supported bullish sentiment. For starters, higher oil prices may lessen the impact of falling earnings in the energy sector. It has also reduced financial pressure in the high-yield debt market. Bottom line We ve experienced volatility over the last year, and returns on the major market indexes have been subdued. However, long-term investors have historically been rewarded by looking past bumps in the road. Those who chase returns or react to every twist and turn in the market are rarely rewarded over the long haul. 1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results. 2 The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results. 3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results. 4 The FTSE Developed ex North America Index is an unmanaged index of large and mid-cap stocks providing coverage of developed markets, excluding the US and Canada. It cannot be invested into directly. Past performance does not guarantee future results.

5 5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results. 6 London Bullion Market Association; gold fixing pricing; Prices can and do vary; past performance does not guarantee future results. It is important that you do not use this publication to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed. All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. DISCLOSURE: Investing involves risk including the potential loss of principal. No strategy can assure success or protects against loss. Past performance is no guarantee of future results. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability. Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Non-U.S. securities markets involve possibly greater risk of political instability and greater currency risk in addition to having been more volatile. These risks can be accentuated in emerging markets. Commodities investments are speculative and involve special risks related to weather and international political and economic developments. Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the portfolio. Tactical allocation may involve more frequent buying and selling of assets and will tend to general higher transaction cost. Investors should consider the tax consequences of moving positions more frequently. Beta measures a portfolio s volatility relative to its benchmark. A Beta greater than 1 suggests the portfolio has historically been more volatile than its benchmark. A Beta less than 1 suggests the portfolio has historically been less volatile than its benchmark. Past performance is not a guarantee of future performance. Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals. All opinions are subject to change without notice in response to changing market and/or economic conditions. Copyright 2016 Financial Jumble, LLC Blue Ocean Global Wealth All rights reserved