Winter 2016 Market Commentary and Outlook

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Despite a positive finish in the fourth quarter, the major market averages ended the year close to where they began. For the year, the S&P 500 rose a mere 1.4% while international stocks as measured by the MSCI EAFE lost –0.8%. Bond returns were nearly unchanged as well, as the Barclays Aggregate gained only 0.6% for the year.

The activity for the stock market during 2015 may be best described as volatile for stocks and frustrating for investors. Although the market made headlines with big up and down swings, not much progress was made by the major market indices in either direction.  The recent market activity has been described as moving “violently sideways.” We prefer the comparison of the stock market to a rocking chair; a lot of activity, but not going anywhere. So far in the first few trading sessions of 2016, the volatility and frustration continues.

Investment gains were scarce during the year while losses, on the other hand, were widespread in many sectors. Small company stocks (Russell 2000 Index) lost –4.4%, high yield bonds (Barclays U.S. Corporate High Yield Index) lost –4.5%, emerging market stocks (MSCI Emerging Markets Index) lost –14.9%, and energy stocks (S&P 500 Energy Sector Index) lost –21.1%. The bottom line is that the average, well‐diversified portfolio lost money in 2015. For example, the average “Moderate Allocation” mutual fund (representing a typical mix of stocks and bonds), as defined by research firm Morningstar, lost –2.0% last year.

Many headwinds negatively affected the market’s performance in 2015. Ongoing economic trouble in Europe heightened during the summer when Greece again threatened to default on its loans and required another round of negotiations with their creditors.  Concerns about a slowdown in China caused severe volatility in Asia and in markets around the world. Closer to home, the U.S. Dollar strengthened significantly during the year, negatively impacting domestic exports and foreign, non‐dollar based investments.  These factors, along with other concerns, have created confusion and uncertainty for investors, contributing to the market volatility.

Oil and energy related companies were among the weakest performers in the market last year. If you owned investments in the energy sector, you likely lost a lot of money in 2015. There are a number of dynamics that have contributed to the 70% drop in the price of crude oil over the past year and a half. Although growth in global oil consumption has been quite steady, a mounting oversupply of oil is primarily to blame for the steep slide in energy prices. New drilling technologies have made it easier for energy companies to find and extract oil. More recently, Saudi Arabia has flooded the oil market with supply from their reserves in an effort to punish their hated rival, Iran. However, production growth is expected to slow in the coming year as energy companies have curtailed new projects and drilling rigs have come offline. This should help to normalize the energy market and eventually lead to higher oil prices.

Another area of significant uncertainty has been the expectation among investors that the Federal Reserve would raise interest rates for the first time since 2006. The prospect of a rate hike caused considerable debate and anxiety for most of the year. The Fed made good on their intentions in December, raising their benchmark interest rate from 0.0% to 0.25%. Many expect that they will raise the Fed Funds rate by another full percentage point in the coming year. Even with the recent and anticipated rate increases by the Fed, interest rates across the board remain well below historical averages.

Despite concerns that the Fed’s action on interest rates could create a drag for the economy, their willingness to begin pulling back their monetary stimulus program signals their confidence in the strength of the economy. Based on recent readings, their faith is warranted as many recent economic measures point to improvements in the U.S. economy.  For example, unemployment has fallen to 5% from the recession high of 10%, aggregate household net worth has risen to an all‐time high of $87 trillion, and auto sales for the year surpassed the previous record set 15 years ago with 17.5 million units sold.

Due to the recent period of low investment returns and high volatility, there is a growing sense of frustration among investors. Following many years of steady gains, the long‐standing bull market has stagnated in the past year and a half. Thanks in part to the media, we often find ourselves focusing all of our attention on short‐term market activity.  In doing this, we risk losing sight of our longer‐term plans. We must remember to take the good years with the bad in order to achieve meaningful long‐term returns.  Quarter‐to‐quarter and year‐to‐year, it is impossible to know with certainty what lies directly ahead. So our advice remains the same; keep short‐term successes and disappointments in perspective, and implement significant portfolio changes only in response to changes in your goals or financial situation.

Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who is in need of financial advice, we will be pleased to speak with them to see if we can help.


Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Horizon Wealth Advisors
Horizon Wealth Advisors is a Houston-based, privately owned, fee-only financial advisor established in 1999. Our mission is to develop long-term relationships with thoughtful, successful individuals, families, and organizations by supporting and assisting them in achieving their financial goals.

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