1st Quarter Investment Report

by | Mar 3, 2016

A variety of negative factors placed considerable pressure on financial markets in recent months. The S&P 500 lost fully 12% of its value in January into February alone, the worst decline since 2008. Traders and investors sold equities with urgency just after the New Year, reacting to plummeting commodities prices, especially crude oil. Although there is no empirical evidence that lower crude oil prices are a direct indicator of a slowing global economy, traders and investors are operating under this assumption. In mid February, rumors that OPEC and other oil producers may consider cutting production placed a temporary floor in crude oil prices, allowing stocks to rally into late February and early March.

Whatever the short term market reaction to crude oil may be, this key commodity is in the process of bottoming, which may help stock prices stabilize at some point in the near future. The fears of global economic contraction are not unfounded, as the big and increasingly important Chinese economy continues to slow down, while Russia, Brazil and Canada are already in recession. The prospects for a recession here in the US have been increasing, but we may be able to dodge the recession bullet if employment remains strong and crude oil and other commodities bottom this year. The Econometric Data Model (known as “ECO/Matrix13”) that I have been compiling since 2001 has been pointing to a slowing economy, which confirms some of the recent caution we’re seeing throughout global markets.

In my recent strategy discussions with Fidelity Institutional Research, we’ve come to some important conclusions about our investment policy for this year. For the near term, we should remain somewhat defensive, as global risks are not yet abating, while valuations for most asset classes remain relatively high. The S&P 500 trades at around 16.7 times 2016 expected earnings; which is still around 9% above assumed fair value. Nonetheless, at some point this year, a buy opportunity will likely develop. In the interim, Fidelity and S&P Capital IQ have assembled the following list of 5 Star Stocks to consider owning when prices offer a buy window. Please see the following link:


Some of the global leaders listed on the above web link may be worth purchasing if valuations are fair and prospects for global growth improve. For the time being, we will maintain our positions in high quality dividend paying assets, keep strong cash balances while preparing to make strategic purchases of highest quality assets when prices are more favorable. Our longer term outlook remains quite positive.

Share This