Have asset allocations failed portfolios?
Last week we sent out a letter to our clients declaring 2015 the “Year of Distortions”. It was a year where the media reported one thing but the reality was another. Asset allocations have not been an effective strategy as every asset category has been hit negatively.
The Fed has caused market uncertainty
A client sent us a question asking to elaborate more on what we mean when we say that the Fed’s actions have caused market uncertainty. How the Fed has caused this uncertainty is more clear when you look at what happened in the markets after the Fed issued statements this year. After each Fed statement, the market responded directly, either positively or negatively (Specific examples given in the video). It is safe to say that when the Fed talks, Wall Street listens. This year the Fed has caused more market uncertainty by what it has released in their statements.
More market uncertainty for 2016
2016 is looking like it will possibly be another year of market uncertainty. The Fed has said it will raise interest rates four times but the market is only pricing in two. That shows a lot of uncertainty. We believe bonds will be a big topic as we go into 2016. We could see both opportunity and volatility there. There are still a lot of positives in equities and we are keeping an eye out for opportunities there as well.
Financing the government
Along with market uncertainty, we have also seen a lot of fiscal uncertainty this year. While some fiscal concerns have been taken off the table, the picture still does not look good. The budget deal will pull government spending forward and will increase GDP initially around .75%. Projections for the national debt for next year is $414 billion. When you factor in this new budget government spending, the reality of that debt is $634 billion. That could impact the markets through treasuries. The government will most likely issue short term treasuries which could be bought up by foreign investors. This could potentially take care of the increased $2 billion plus in national debt. We will be watching how this paper is issued and who is buying as it will affect the supply and demand in the market.
Please continue to send us your comments and questions.
Greg Powell, CIMA
Email Greg Powell here
Bobby Norman, CFP®
Email Bobby Norman here
Trey Booth, CFA®
Email Trey Booth here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds are Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Economic forecasts set forth in this presentation may not develop as predicted.
Stock investing involves risk including potential loss of principal.
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