Market Currents

• Lower Markets. Markets around the globe have opened lower in 2016.  Averages have recovered a bit of late, but remain in the red.

• Low Oil Prices are Biting. Wild swings in oil, and downward pressures in commodity markets, remain a focus of investor concern.  Energy companies have begun to cut dividends and capital expenditures to conserve cash, amid low selling prices.

• A New Chapter in Central Banking. The Bank of Japan introduced negative interest rates for the first time ever.  The policy move, intended to be accommodative, was not well-received by markets in Japan and elsewhere.  Banks, in particular, have been hit especially hard, as investors fear that the outlook for their earnings is threatened due to further margin compression.

• Soft Earnings. Most companies have now reported earnings for Q4 2015.  According to FactSet, blended earnings declined -3.7% for the S&P 500, marking the first time since 2009 that the index has seen three consecutive quarters of year-over-year earnings declines.  The bulk of the earnings downdraft, unsurprisingly, came from the energy and materials sectors.

• A Resilient US. The US economy remains a relative bright spot.  Approximately 70% of US GDP is driven by consumption.  Jobs growth continues to track positively.  Average wage growth, after remaining stagnant for over a decade, is finally picking up.  Household balance sheets are comparatively healthy.

• A Go-Slow Fed Expected. In December the Federal Reserve raised overnight interest rates for the first time in over nine years.  Given volatile markets and low inflation, we think the Fed will be slow and deliberate with additional hikes.

• Equities Attractive. Despite soft sentiment, global economic fundamentals are not quite as bad as market prices imply.  We have adopted some defensive moves in an effort to soften some of the rockiness in the short-term, but we remain long-term constructive on the market as it has gotten cheaper relative to earnings.