Letter to Our Clients – December 2016

December, 2016


Dear Clients and Friends:

There have been two major surprises in the last month or so – the Trump election, and the reaction of the financial markets to his victory.

The stock market as a whole has risen dramatically since the election, on the expectation that reduced taxes (corporate and personal), increased government spending and the easing of government regulations will combine to spur growth.  This may or may not actually occur, but at least in the short run stocks in companies that benefit from a high-growth environment have been rising.  It is not a uniform advance, however.  A CNBC internet news article on December 5th indicated that the stocks of 4 companies were responsible for about 55% of the return of the Dow Jones Industrial Average* from the election through the end of November (Goldman Sachs, United Health, Caterpillar, and JP Morgan), resulting in a very uneven market advance.  Left behind are the so-called “boring” or “low-risk” companies, many of which are at or near 52-week lows.

Hot money has moved from “safe” to “risk-on,” and many feel we are now in a market of greater irrational exuberance than we were before the election.  (Alan Greenspan reportedly used that phrase for the first time in 1996, 20 years ago, and it took almost 4 years before the stock market crashed.)

This “hot money movement” has also affected the bond markets.  Aggressive investors have sold bonds to buy potentially high-growth stocks.  While almost all bond indexes are down, bonds that are high-quality (such as US Treasury bonds) have fallen in value more than bonds considered “more risky,” such as high-yield bonds (also known as junk bonds).  Regardless, bonds remain an important part of almost everyone’s portfolio.

People are asking: What will the markets do from here?  No one knows what they will do, and those who say they do are either lying or fooling themselves.  Those who chase performance can sometimes profit, but usually by the time one becomes aware of a trend it is too late to fully capture its benefit.  The other side is usually true also, in that one can never tell if a drop in the market is the beginning of a long trend, or just a temporary pull-back.  We believe those who most benefit from the stock and bond markets are those who can be patient enough to ignore the spikes in the market, and disciplined enough to maintain their investment strategy.

We encourage investors to remain mindful of their investment goals, their time horizon, and their ability to tolerate fluctuation – especially downward fluctuation.  This may seem boring when markets are soaring, and frightening when markets are collapsing, but remaining disciplined and patient improves your likelihood of obtaining and maintaining financial stability.

As always, please contact us if you have questions or concerns.  And, from all of us, Happy Holidays!

Best Wishes,

Robert K. Haley, JD, CFP®, AIF®
Chairman, CEO


*All indices, including the Dow Jones Industrial Average, are unmanaged and investors cannot actually invest directly into an index.  Unlike investments, indices do not incur management fees, charges, or expenses.  Past performance does not guarantee future results.