Broker Check

Investor Discussions - Q3 Mid-quarter Update 1 of 2

Wealth & Pension Services Group
Matt B. Bailey, CFA - Portfolio Manager

Q3|2015 Mid-quarter Update


The positive attitude displayed by many investors throughout most of 2015 has been slowly evaporating. Uncertainty over China’s economy, the unresolved Greek debt crisis, slow economic growth and the threat of rising rates are probable causes. Additionally, the underlying health of the U.S. stock market is less than meets the eye. For instance, while the S&P 500 index is slightly positive for the year, almost half of the stocks in it are in bearish territory.


Stocks both home and abroad have recently come under selling pressure linked to looming headline risk. As of today’s trading session (08/20/2015), the S&P 500 index is only up around a half percent for the year. Chart 1 illustrates the weakness stocks have been exhibiting since earlier this summer.

Within the U.S., the bellwether S&P 500 index has remained strong but is starting to show cracks in its facade. Fewer and fewer stocks within the index are moving in a positive direction. As of late, almost half of the companies within the index were technically bearish.

Outside the U.S., the international developed markets (MSCI EAFE) continue to lead global stocks YTD. However, they too have sold off over the last few months. Finally, emerging market stocks (MSCI Emerging Markets) have also weakened and traded lower this summer. Fears over a Chinese economic slowdown and falling commodity prices are likely catalysts.

We maintain our positive long-term outlook on global stocks but have adjusted our near-term view to consider further reducing risk. Our research indicates that market volatility is likely to continue in the coming months and the two trend models we follow also suggest a reduction in risk is warranted. The models are designed to provide timely warning signals of potential changes in the stock market's trend. Over the last few months, we’ve slightly reduced exposure to both stocks and bonds in favor of cash. We plan to continue raising cash if our research points towards additional stock market weakness.

Bond Market

The bond market has also started to suggest that a reduction in risk is warranted. Corporate credit has recently sold off and U.S. interest rates have fallen from their recent highs. 10-yr treasury yields have fallen yet again this year from a high of 2.50%, down to 2.10% (data as of 08/20/2015). Low inflation, falling commodity prices, and fear over rising rates are all to blame. Even so, global bonds continue to garner new assets as investors seek income and the potential for a less volatile asset class.

We believe interest rates are likely to remain low throughout the rest of 2015. The Fed will likely raise rates in September or December, but it may not have a major impact on the bond markets. In fact, a rate hike may already be priced into interest rates. Either way, we still believe bonds play an important part in most portfolios. They provide consistent income and may help reduce volatility during negative periods in the stock market.


Looking ahead, we see a potentially difficult environment for many asset classes. While we believe that stocks remain relatively more attractive than bonds, they have certainly lost some of their luster. Overall, stocks and bonds may generate flat to negative returns for the remainder of the year as the current issues work themselves out.

As always, please feel free to contact us with any questions you may have.


William Kring, CFP®, AIF®
Chief Investment Officer

Matt B. Bailey, CFA®, CMT®
Portfolio Manager

Source: Leuthold Group, Morningstar

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