September is historically the worst calendar month of the year for stock market returns. Since 1950, the average September return for the S&P 500 index is -0.7%. Additionally, negative news which could affect stocks appear to be piling up including the impacts of Hurricanes Harvey and Irma, North Korea nuclear tests, the now extended deadline for debt limit talks and the continued Washington gridlock. The strong stock market optimism from the beginning of this year seems to have faded and, with stock market valuations above historical averages, the fear is “what goes up must come down”.
We don’t dismiss any of these risks but, as investors, we understand that predicting near-term movement of markets is impossible. Most bear markets are accompanied by a recession and, importantly, current indicators of the economy show we are still in a modest and steady expansion. The stock market’s performance this year has been driven more by strong earnings and economic strength than the promise of stimulus from President Trump’s agenda. This year has been a good reminder that politics makes for good headlines and feverish emotions, but policy change in Washington moves slowly. Additionally, while President Trump’s executive changes have been grabbing headlines most will have little to no immediate economic impact. Continue reading
With the benefit of hindsight, few tasks look easier than pointing out a market peak. Looking at a price chart of the stocks market, it is easy to point to the top and say, “Here is where to sell stocks.” Unfortunately, there are few indicators that help anticipate market tops. While market valuation is useful over 10-year periods, it is a poor indicator over a 1-year period. At Crestwood, we believe that trying to beat the market by attempting to anticipate the stock market’s ups and downs is a fool’s errand due to the sporadic nature of returns, importance of tax-deferred compounding and irrational behavior of investors.
Every day matters
Over the past seven calendar years, if you missed the best 5 days in the stock market your return drops significantly, falling from 132.7% to 87.6%! The below chart shows the outsized effect of missing days in the market can have on long-term returns: Continue reading
After a year of unprecedented volatility, investors were surprised to learn that the S&P 500 finished up 2.1% (including dividends) and the Barclays Cap Aggregate Government Credit Bond Index finished up 8.75%. Though a 2.1% return seems modest, investors should be relieved as almost all the other world indexes finished the year in negative territory (the MSCI World Index was down -9.41%). In hindsight, it was a year where political strategists rather than economists might have had more success forecasting markets, and where returns were awarded to those taking the least amount of risk.
Much of the volatility in 2011 can be tied to economic uncertainty caused by the ongoing, and unmatched, global deleveraging. Since this “leverage bubble” was created over the last 30 years, the rapid global deleveraging process sadly makes economic hardship unavoidable. In addition, the impact of this deleveraging has been exacerbated by the lack of credibility in government leadership (and policies), the tragic tsunami in Japan, the Arab spring, and the slowing Chinese economy. It is this uncertainty and fear that has driven behavioral change, including muted consumer spending, underinvestment by corporations, and, most clearly, the lack of willingness by investors to take any risk.
Whether it is retirement planning, funding future education for children or grandchildren, or the possibility of helping a family member financially down the road, most people have at least one question mark in their minds in regard to their financial goals.
We believe there can be great benefits in developing a formal financial plan. In fact, just the exercise of identifying personal goals can lead to greater peace of mind. Creating a plan for the future and a framework for measuring success that will continue to be relevant as personal circumstances evolve can increase the probability of achieving those goals. After all, if you cannot name the ambition, how will you know if you have succeeded or, more importantly, if you have drifted from the intended path? Defining an individual’s objectives, along with the perceived challenges in getting there, will flesh out the issues and will help separate the ‘wants’ from the ‘must haves’.
Supporting worthy non-profit organizations has always been an important part of Crestwood Advisors’ culture and value system. One such organization, Family Service of Greater Boston (FSGB), focuses on improving the lives of Boston’s most vulnerable children, youth and families.
As the oldest social service agency in Boston, FSGB seeks to break the cycle of intergenerational family disadvantage. The agency promotes the self-sufficiency and well-being of at-risk children, youth and families by providing innovative, culturally competent and integrated social services to ensure academic, life and community success. Some of their programs include Strong StartTM, an early intervention/prevention program that promotes healthy early childhood development in disadvantaged children; YouthAim!TM, a leadership program the educates high school age youth about factors placing them at risk for harm; and the Family Independence Teen Living ProgramTM, which provides group home living for teen mothers and their children who are unable to live with their families due to abuse, neglect or other extenuating circumstances.
To learn more about these programs, and others offered at FSGB, please visit http://www.fsgb.org.
Given the ongoing global challenges, numerous impediments to economic growth, and a long-term deleveraging process, why do we continue to favor stocks for long term investors? The answer is that history has demonstrated (regardless of the economic backdrop) that well run businesses, with sustainable above average returns on capital, purchased at attractive valuations, deliver solid returns to shareholders over time. The next several months or quarters will likely continue to be volatile, but we are confident about the long term prospects of the stocks we own.
Over the past several weeks, stock markets around the world have been volatile and are generally trading lower. Here in the U.S., while the S&P 500 remains in positive territory year-to-date, this broad stock market benchmark is off 9% from its highs in March. Much of the current investment market volatility is being driven by events in Europe. Elections in Greece, France and Germany were the catalyst to the recent downturn. Greece can no longer achieve consensus, so they are going to have another public election in June. In France, Nicolas Sarkozy has been thrown out and Francois Hollande has been elected, a Socialist with anti-austerity views. In Germany, Prime Minister Angela Merkel has lost a considerable advantage in Parliament and pressure is rising to ease strains within the EU. All of these political shifts can be attributed to the social turmoil resulting from the slow growth and high unemployment that is a derivative of the ongoing deleveraging and the austerity policies.
Forty-two percent . This is the percentage of large cap fund managers that beat the S&P 500 return of 1% over the past five years. Assembling a portfolio of assets to succeed in a challenging environment has proven difficult. With many more challenges on the horizon – European debt, fiscal deficits, political gridlock, a potential housing bubble in China and the prospect for war in Iran, Korea, etc. – piecing together a portfolio that offers positive absolute returns, and limited downside, is tough. While there are several risks ahead, we have been busy putting together a roster of asset classes and securities that should offer a balance of solid long term returns and downside protection.
Twenty-one percent . If you are a general manager in the National Football League (NFL), this is the chance that a player you draft will be starting for your team five years from now. There are 214 players drafted into the NFL every year, and the majority of those players will not have a positive impact on their team. So how does an NFL general manager draft well, and succeed, in what is a low return (21% success rate) environment? Some answers can be found in the drafting of Tom Brady by the Patriots in 2000 NFL Draft.
Investors are no doubt weary of hearing about all of the geo-political and economic risks in the world. The last five years have been exhausting, filled with unprecedented volatility, global turmoil and uncertainty. Unfortunately, the world is unlikely to simplify anytime soon.
Israel and Iran continue to edge closer to conflict, the European debt crisis remains unresolved, China’s growth is slowing and near zero US interest rates are punishing savers as the Fed has pulled out all of the stops in an attempt to restart the economy. In the US, we are facing a transformative election ahead of a self-imposed fiscal cliff that could subtract, by some estimates, as much as 5% from U.S. GDP growth under the worst case scenario.
Regardless of what your personal political leanings are, most can probably agree that compromise will be the key to avoiding the negative drag that higher taxes and sequestration could cause. We can also agree that compromise might be a bridge too far for most politicians these days. While the scale of the economic drag these spending cuts and tax increases will cause is uncertain, investors should expect to see headwinds to economic growth in 2013.
World headlines continue to be mostly negative and rotate between the crisis in Europe, the economic slowdown in China, the ongoing unrest in the Middle East, and the upcoming U.S. election and “fiscal cliff”. In addition, the recent declines in retail sales and slowing in manufacturing and business spending has heightened fears of a double dip recession. As the U.S. experiences the slowest recovery from a recession in the last 70 years, it is not surprising that investors have little confidence in investment markets.
With all of the focus on what can go wrong, it is hard to see the pockets of strength. Importantly, we have now had six months of improving housing market data and declining gasoline prices which have been helpful to household budgets. Though this data is not enough to offset a slowing economy, we would not be surprised to see some short-term rallies as investor sentiment is very pessimistic (which is often a good contrarian indicator) and the Federal Reserve is hinting at another round of quantitative easing.