Market Commentary
3Q 2015
I confess to struggling to write this quarter and year-end capital markets letter. The financial sections of numerous publications are already filled with recaps of 2015 and 2016 forecasts. One can easily find statistics and headlines of what happened in 2015 ... fighting in the middle east, the debt crisis in Greece and China's surprise devaluation of its currency. These are some of the events that resulted in the Dow Jones Industrial Average finishing at 17,425, down 2.2% for the year. The S&P 500 did slightly better ending at 2043, down .73% in 2015. The Russell 2000, which measures small capitalization U.S. stocks, completed the year at 1135, off 5.7% for the year. It is well known and old news that the Federal Reserve Open Market Committee lifted interest rates by ¼% in early December.  The NASDAQ Composite, which measures numerous technology stocks was one of the very few bright spots in 2015 advancing 5.7% in 2015 to finish at 5007. 
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Now that 2015 is history we turn our attention to 2016. Even though we just entered 2016, world news is affecting the U.S. markets and creating more uncertainty and volatility.  China is again in the news as is conflict in the Middle East.  We have reviewed the Congressional Budget Offices, Economic Update to the Budget and Economic Outlook report,https://www.cbo.gov/publication/45066, which projects Gross Domestic Production (GDP) growth of approximately of 3.0% in 2016. We have read the Federal Reserve Bank of New York's U.S. Economy in a Snapshot. We know the forecast for operating earnings of the S&P 500 firms to be $130, which would suggest upside potential for share prices. We have reviewed the labor reports on employment and reviewed the inflation expectations. All of this data suggests the U.S. economy will continue to expand in 2016, yet consumer sentiment is at lower than expected levels and world events are creating fear in the financial markets. 

Are we all just a little bit stuck asking ourselves:
  • What if the Chinese economy continues to decline?
  • What if fighting in the Middle-East continues or worsens?
  • What if hostilities between Russia and the Ukraine escalate?
  • What if Greece or Puerto Rico default on their debt?
  • What if Greece exits the European Union?
  • What if there is another terrorist attack in the U.S.?
  • What if there is another devastating weather event?
  • What if the Presidential election doesn't go to our candidate? 
What if ... well the reality is that some, if not all, of these things may very well occur.   

However, should we also consider:
  • What if people continue to get married and have children?
  • What if people continue to buy new homes?
  • What if people continue to purchase new cars and appliances?
  • What if families continue to invest in their children by sending them off to college?
  • What if scientists develop new life saving medicines?
  • What if engineers introduce new technologies?
  • What if businesses continue to develop more efficient processes and improve productivity? 
It is important to analyze and study market forces to try to understand what the future might hold but it doesn't guarantee us anything, particularly in the short-run. We believe the U.S. economy is fundamentally sound.  We are cautiously optimistic about the prospects for 2016 despite any number of "what ifs" that might distract investors. We believe in the resilience of the U.S. economy and its ability to adapt and even thrive. We believe in the resilience of people working to improve their lives.   

I recently heard a sermon by the Reverend Steven Jester of Second Presbyterian Church in Louisville, KY.  The sermon was titled "Be not afraid" and the message has encouraged me to move forward with optimism.  While events out of our control influence the financial markets, we can trust in the One that is ultimately in control.  Here is a link to the Dec. 13, 2015 sermon:  
http://www.secondpresbyterian.church/sermons/2015-sermons/ 
 
Best wishes for a wonderful 2016!
 

 
Tim Clark
Chief Operating Officer