Market Update – June 2017 – “Winter Is Coming”
By: Rand Baughman CFP®
It has been another good start to the year in the markets. All asset classes have seen positive returns. The best performing asset class, in both equity and fixed income, has been Emerging Markets. The post-election rally in US Small Cap has tapered off in 2017.
Even though the markets have been performing well, I believe we are approaching the latter stages of the recovery for a couple of reasons:
Below is a graph that shows the current valuations among the major countries. Unlike previous quarters, when there was value in international developed and emerging markets, valuations around the world are currently overvalued.
The title of this article – “Winter is Coming” – is a phrase often used in the hit TV show ‘Game of Thrones’. Ned Stark, the patriarch of the Stark family, coined the phrase to emphasize that even though there is currently peace, war will be coming. The purpose of this article is not to scare anyone; it is to prepare us for a potential downturn.
So how do we prepare for a potential downturn?
Let’s be honest, we have been saying a correction is coming for about four years now. You probably would not be too pleased with us if we had given advice to hold money out of the market four years ago. Therefore, timing the market is not a viable option. Nobody has a crystal ball, and nobody can predict the future.
We expected the portfolios to have less of a drop than the S&P 500, because a diversified portfolio should have less risk than one asset class. We were most pleased that our portfolios performed better than the benchmark diversified portfolio. This data confirmed that we have diversified our portfolios and positioned them well for any potential downturn.
In closing, we are grateful for the opportunity to work with you and we do not take the opportunity lightly. We believe transparent communication on the shifting markets is a key component in maintaining our relationship. As the year continues, expect to hear more from us on trends, expectations and planning opportunities. In the meantime, call if you have any questions or if you want to grab a cup of hot chocolate or go winter glove shopping.