The Stock Market

By Michael A. Flower, CFP , Managing Partner, Financial Principles, LLC On Dec 31, 2015

Each year, we get to the beginning of the New Year and wonder: What does the stock market have in store for us? The abundant market information makes it difficult to discern where we are going and what to expect. We like to look at the markets in several different ways when making investment decisions today. We view the fundamentals, academics and one’s own personal situation.

We see many challenges and hurdles for the market in the upcoming year – slowdown of China’s economy, rising tensions in the Middle East, rate increases in the US, while a number of economies in Europe and Asia are easing their monetary policies. Let’s take a step back and review some basic information.

The housing recovery continues to improve. Housing starts, sales and permits create many jobs in the US and strengthen the base of our economy. GDP, which represents the total economic activity in the US, has been positive and healthy. The job market is strengthening and jobless claims are falling. Finally, inflation has remained low, and we expect to see a rate increase by the Fed. While the rate increase most likely will push the equity markets down temporarily, the fact of an increase is a sign of strength. The bottom line is that the news most often heard is negative and alarming. When we examine the entire picture, we discover a composite of positive and negative.

Whether the market moves up or down in 2016 should not alter one’s personal situation. Any investment plan needs to have a long-term horizon. A 30 year old and a 70 year old both have long time horizons. However, their plans bear different goals, objectives and risk. If we pay attention to the frightening news each day and change plans based upon the negative news, a mistake will be made. That is why we have an investment plan. Logic plays a critical role in creating the plan. Logic’s nemesis is emotion.

In summary, the market will face many obstacles in 2016. We also believe that volatility will continue. In 2015, we had our first correction in 3½ years. The market lost 11 percent in seven days in the month of August. Nonetheless, the market rebounded by year end. Most of us forgot that corrections happen about once per year.

When we take a moment to sort through the good and the bad, we see more good than bad at the outset of 2016. With the New Year upon us, one should take the opportunity to review his or her investment plan to make sure it is representative of one’s goals, objectives and risk. The plan will be a guide through the bumps in the road and keep one on target.

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