Over Here, Over There

July 20, 2017 by Justin Sautter

Over Here...The second quarter is complete and despite continued low volatility, the S&P 500 has moved around quite a bit this year. At one point it was down 3% from the high, only to rally to finish the second quarter up over 8% (price return). Interestingly, this is roughly in line with the average annual peak to trough swing of 14% for the index since 1980. With that in mind, you might assume that the market is just being average, I would respectfully disagree.

I would argue that the market is far from average now, and that is, in fact, a good thing. When you consider the average post-recession expansion is 47 months, and then you recognize that we are in month 96 today, things start to look far from normal. But, the 2.1% real GDP growth (annualized) in this expansion is significantly less than in any other expansion period since World War II. Slow and steady appears to be winning the race. Further, I suspect we will see another rate hike or two this year, which should underscore that the economy is firming and markets are stable. Three cheers for the tortoise!

Over There...Following the commodity collapse in 2012-2015 Emerging Market (EM) currencies and market returns were poor. Recently, currencies have stabilized, and in some cases started to appreciate. This helped bolster market returns in 2016 and has continued into this year as well. Coupled with this, the earnings are improving for EM companies while valuations remain just below historical averages. As of this writing, EM has returned over 18% for the year. The next best asset category was Developed Markets (DM) at 14.2%. (You may recall that DM had a relatively poor showing in 2016.)

When you consider the fluctuation of returns within all asset categories, it highlights the need for diligent asset allocation, diversification, and the fortitude to stick to a well-conceived investing strategy.

Fixed Income   2.3%
Cash 0.3%
High Yield Bonds 6.5%
REITS 4.9%
International Equity 14.2%
U.S. Large Cap 9.3%
U.S. Small Cap 5.0%
Emerging Markets 18.6%
Commodity -5.3%
Diversified 6.8%

Posted by Justin Sautter

Justin Sautter is an investment advisor at Russell Capital Management in Lexington, Kentucky. A Certified Private Wealth Advisor® (CPWA), Justin focuses on the lifecycle of wealth from accumulation and preservation to distribution. Read more ›