Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet...

Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet PerSPectiVe,
Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet PerSPectiVe,
Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet PerSPectiVe,
Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet PerSPectiVe,
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Transcript of Quarterly Market Perspective Q1 2016 - Fidelity ... Strategic aDViSerS, inc., Quarterly MarKet...

  • Quarterly Market Perspective

    Summary

    • It is emotionally stressful watching markets go up and down over short periods of time.

    • Following a disciplined process aligned with your financial goals can help you overcome these challenging periods.

    • The U.S. continues to grow, supported by a healthy labor market and growing wages, but we’re seeing signs of rising inflation.

    Q1 2016

    Bruce Herring President Strategic Advisers, Inc.

    Over the last few years — in messages like this one — I have continually emphasized

    the importance of patience and a long-term perspective. While easy to state, it can be

    difficult in practice. That’s because it’s emotionally stressful watching your investments

    go up and go down — particularly when markets shift rapidly over short periods

    of time.

    It is during times like these that I am reminded of a quote from a former mentor of

    mine, Peter Lynch, who said: “Far more money has been lost by investors preparing

    for corrections, or trying to anticipate corrections, than has been lost in corrections

    themselves.”

    This is where we hope to help and why we are so passionate and committed to what

    we do for each and every client. We want to provide you with added emotional

    discipline during challenging and ever-changing market environments by stringently

    following an investment process that aligns with your objectives and goals. More

    recently, this belief has been reinforced as markets have moved up and down with

    greater frequency.

    Recent Market Shifts: Down Then Up

    The year began with markets selling off. By February 11, U.S. large- and small-cap stocks fell by 10% and 16%,1 respectively. Overseas, stocks fell 12%.2 These negative stock returns were largely driven by recurring concerns over weaker global growth, including a slowing Chinese economy and falling oil prices. However, adding to these well-known concerns was the uncertainty of how fast the Federal Reserve might raise future interest rates.

    As we always do in times like these, we analyzed the situation and retested our investment views. We concluded that

    despite these near-term challenges, many developed markets, led by the United States, were growing, and most importantly, we believed that a U.S. recession was not imminent. By mid- February, markets started to refocus on the long term, including the strength of the U.S. economy, and stocks broadly recovered. This rapid move down and back up highlights the emotional discipline we are seeking to provide you with, and how our investment process is designed to help ensure that your portfolio is managed consistent with your financial goals.

    STRATegiC AdviSeRS, inC.

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  • Strategic aDViSerS, inc., Quarterly MarKet PerSPectiVe, Q1 2016

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    Bonds Have Provided Diversification Benefits

    The recent shifts in the market also highlight the ben- efits of diversification. For most client accounts, this is reflected by the mix of stocks and bonds in your port- folio. during the stock market sell-off earlier in the year, high-quality bonds, such as U.S. Treasuries, gained more than 2%.3 These positive returns occurred in spite of the fact that the Federal Reserve raised the federal funds rate by 0.25% in december. Over the last several years, experts and pundits alike have raised the warning flag regarding Federal Reserve policy, including the effect that rising interest rates would have on bonds in your portfolio. The recent market environment serves as an important reminder that bonds play an important role in your portfolio when stocks are more challenged. History suggests that most bonds are less volatile instruments than stocks, and this does not change during periods of rising interest rates.

    We believe that a disciplined process and diversified investment approach will be vital in the year ahead, as developing economies, such as China, are likely to remain challenged. That’s because China is seeking to transition

    from a low-wage export-driven economy to one powered by consumers and high-tech manufacturing. As we have continued to experience, this transition will be bumpy, and we expect that markets will continue to react both positively and negatively to these very near-term focused shifts.

    Economic Cycle Showing Signs of a Transition

    in contrast, we continue to believe that many developed economies continue to grow. Here in the U.S., growth remains supported by a healthy labor market, growing wages, and a steady housing recovery. However, we recognize that we’ve had six straight years4 of economic expansion. given this longer than normal period, we are seeing signs of a shift in the stage of the U.S. economic cycle that is consistent with positive markets but also lower earnings growth and rising inflation. Historically, higher inflation has spurred action by the Federal Reserve. if this were to happen, it might create a chal- lenging environment for stocks. While we do not believe this to be of imminent concern, we are watching closely.

    $89.73

    $84.07

    $80

    $85

    $90

    $95

    $100

    $105

    1/7/16 1/14/16 1/21/16 1/28/16 2/4/16 2/11/16

    Large-Cap Stocks Small-Cap Stocks

    U.S. Large- and Small-Cap Stock Decline and Rebound

    G ro

    w th

    o f $

    10 0

    3/31/16 3/24/16 3/17/16 3/10/16 3/3/16 2/25/16 2/18/16

    $101.35

    $98.48

    Past performance is no guarantee of future results.

    U.S. Large-Cap and Small-Cap returns 1/1/2016–3/31/2016.

    Source: Fidelity Investments. Market data includes the following indexes, the S&P 500® Index and Russell 2000® Index.

    All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Indexes are not illustrative of any particular investment and it is not possible to invest directly in an index.

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  • STRATegiC AdviSeRS, inC., QUARTeRly MARKeT PeRSPeCTive, Q1 2016

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    About the Author

    Bruce Herring President, Strategic Advisers, Inc. Bruce Herring is president of Strategic Advisers, Inc. (SAI), a registered investment adviser and a Fidelity Investments company. Mr. Herring has been with Fidelity since 1987 and, before assuming his current role in 2015, held assignments as group CIO of the Global Asset Allocation and Equity divisions, director of research for Fidelity Tokyo, director of U.S. equity research, portfolio manager for U.S. equity funds, and research analyst.

    in the coming months, we expect to see headlines reflecting the news of the day that may seem significant. it might be Britain’s referendum vote in June or the upcoming presidential election. it is the role of market commentators to get us excited by the news of the day, and to provide us with the reasons markets fell. This news, and the emotion it creates, can sometimes cause investors to react. This is why, in the management of your

    portfolio, we relentlessly seek to understand each event and the implications it may or may not have on our views and, most importantly, on your portfolio.

    Thank you for the trust you’ve placed in us. We will con- tinue to follow a disciplined process and diversified invest- ment approach to help you reach your financial goals.

    Four phases of an economy’s market cycle

    Early Mid Late Recession

    • Activity rebounds (gdP, employment, incomes)

    • Credit begins to grow • Profits grow rapidly • Policy still stimulative • Inventories low; sales

    improve

    • Growth peaking • Credit growth strong • Profit growth peaks • Policy neutral • Inventories, sales

    grow; equilibrium reached

    • Growth moderating • Credit tightens • Earnings under

    pressure • Policy contractionary • Inventories grow;

    sales growth falls

    • Falling activity • Credit dries up • Profits decline • Policy eases • Inventories, sales fall

    Note: This is a hypothetical illustration of a typical business cycle. There is not always a chronological progression in this order, and there have been cycles when the economy has skipped a phase or retraced an earlier one.

    Source: Fidelity Investments (AART), as of March 2016.

    RECOVERY EXPANSION

    CONTRACTION

    U.S.

    Inflationary Pressures Red = High

    + Economic Growth

    Relative Performance of Economically

    Sensitive Assets Green = Strong

  • 1Large Cap = S&P 500® Index; Small Cap = Russell 2000® Index; as of 12/31/2015–2/11/2016.

    2MSCI All Country World ex-U.S. Index, as of 12/31/2015–2/11/2016.

    3Barclays U.S. Aggregate Bond Index, as of 12/31/2015–2/11/2016.

    4Bureau of Economic Analysis, as of 12/31/2015.

    Views expressed are as of March 31, 2016, and are subject to change at any time based on market and other conditions. Data is unaudited. Information may not be representative of current or future holdings.

    Neither asset allocation nor diversification ensures a profit or protects against a loss.

    Past performance does not guarantee future results.

    This presentation does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation would be unlawful. Nothing contained herein constitutes investmen