Stocks Sink on Oil and Fed Anticipation
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 12/11/15. Rates and Economic Calendar Data from Bloomberg as of 12/14/15.
The S&P 500 Index fell 3.74% last week as oil prices traded lower and investors kept focus on this Wednesday’s upcoming Federal Reserve (Fed) Interest Rate announcement. West Texas Intermediate (WTI) oil prices finished the week at $35.61 a barrel, fueling concerns that stubbornly lower energy prices may translate to weak economic growth. While not ignoring the fact that the U.S. and Global economies face a multitude of challenges in an unprecedented economic climate, we continue to believe that oil is a supply side story. Low interest rates, increasing wages, lower unemployment and cheaper prices at the pump should benefit consumers and allow them to spend more in 2016 (and perhaps this holiday season). Since consumer spending makes up the vast majority (i.e. 2/3) of U.S. Gross Domestic Product (GDP) and considering the tailwinds mentioned above, there is a strong case to be made for continued economic growth in the coming year.
Economic growth, however, is not necessarily correlated to positive stock returns. As of Tuesday December 14, the S&P 500 Index was down 1.8% for 2015 despite the U.S. economy expanding at an estimated rate of 2.5% this year1.
As time winds down on 2015, investors should begin to position themselves for what will likely be a volatile environment for stocks in 2016 with the market continuing to hang on the outcome of the Fed’s eight scheduled meetings. While Asset Allocation is often cited as being the largest determinant of long term performance, security selection can also play a key role in volatile markets and significantly affect shorter term performance. This is perhaps best highlighted by looking at the difference between the ten best and ten worst performing stocks in the S&P 500 so far in 20152. The median return of the ten best performing companies is a staggering 60% while the median return of the ten worst performing companies is -66%! This spread is due not only to the individual securities but also to the sectors the companies operate in. To ensure you have the balance in place to achieve your long term financial goals or to check your security selection to see how you are positioned for the short term, we encourage you to speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
1. JP Morgan estimate as of 12/11/2015
2. Data from cnnmoney.com as of 12/15/2015
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Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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