Rough Start to 2016 - What happened?

Submitted by Academy Wealth Advisers on January 7th, 2016

Written by Rick Welch on January 7, 2016

After a disappointing end to 2015, the first trading week of 2016 has seen increased volatility and share price losses. Today (Thursday at 8:30 AM EST) looks to bring additional losses as stock futures currently indicate a steep sell off.

What has happened? From a fundamental perspective, not so much. In our view, much of the increased volatility stems from a delayed (or overdue) correction in the Chinese stock market. The link below is to a Schwab article which offers a good explanation of the problem:

http://www.schwab.com/public/schwab/nn/articles/Schwab-s-Perspective-on-Recent-Market-Volatility?cmp=em-SCK

What should investors expect in 2016?

1. More short term periods of market volatility.

2. In the US, a greater focus on improved EPS. We think S&P 500 earnings growth will improve with best prospects seen in consumer discretionary, financials, health care and technology. The energy sector faces another very difficult year.

3. The Fed will be patient in its plan to raise interest rates - we think we will see 2 more increases (second half of 2016?) of 25 bps each.

4. Economic conditions in Europe should continue to improve.

5. China will continue to be the wild card as the focus of its economic growth changes from government infrastructure investment to domestic consumption.

6. If commodities continue their decline, we would expect many emerging markets to struggle.

7. History may be on our side - typically after a flat year, the market rallies.

In times like this, it is hard to focus on the long term. Try not to worry, rely on your asset allocation to work for you. If you have any questions about this note, or would just like to chat, please do not hesitate to call on us.