Darren's Blog

A resource for the thoughts and writings of Darren Brennan

June 2016 Market Commentary

 

Economic Outlook

 

I can’t believe it is June already and we are back to talking about the Fed and interest rates. There has been some talk that there is a chance for the Fed to raise rates at this month’s meeting, but I am skeptical that we will see any rate hike before the elections. I feel this way because when the Fed raises rates, it has a chilling effect on the economy and we have a very weak economy right now. The last thing that the Fed wants to do is push the U.S. back into recession or the last 7 years of the Fed’s quantitative easing was for nothing, but if the Fed moves too soon on interest rates, then we could easily see a weak recession. I do not believe that the Fed or the powers-that-be want another recession in an election year so I will stick to my belief that the Fed moves on rates just once this year and it should be after the elections, we will see. Whenever the Fed does raise rates again, I fully expect market volatility although maybe not to the levels we saw in December when the Fed last raised rates. As in December, I think the volatility should once again be short-lived.

 

 

 

Elections 2016

 

For Republicans it is going to be easy to ask the American public for a change in direction with the weak economy that Obama has presided over for the last 8 years, and for Democrats it is getting increasingly difficult to defend Obama’s policies and the results of those policies and ask the public for four more years of the same below-trend economy. Hillary has a tough road to the White House, but then again Obama was re-elected so I do not underestimate voters to make the same mistakes again.

 

 

 

Stock/Bond Report

 

The current bull market in stocks is now in its 87th month and that has some clients wondering if this market is due for a correction. While the average bull stock market since 1950 lasts about 60 months, this one has certainly been one of the longest and different for many reasons. First, I do not think that just because this bull market is one of the longest means that it is due for a correction. Market corrections are, in fact, healthy for stocks in the long-term since declines in stock values can help form a new base on which to build another leg up in values. However, I would argue that we already experienced two declines of almost 10% over the past year so I think we are already in a consolidation phase right now as most indexes are not higher compared to a year ago. Second, the most unique quality about the current bull market that has pushed stocks higher over the last 7 years has been the Fed’s quantitative easing and low interest rates over that time. So when the Fed is seen as raising rates, stock investors think someone is taking away the punch bowl at the party, but I still argue that the Fed’s unwinding of these programs will be a slow process that could take a decade to play out. So while the Fed is removing some support for stocks through higher rates, this very slow unwinding should keep the easy money that has propped up stock values in play for the next few years.    

 

 

 

With the uncertainty of the upcoming elections, I think equity values will struggle to hold any gains prior to the election. In the near-term, we are entering the typically volatile summer months so I expect the market gyrations to increase, but I am not predicting a major, long-lasting downturn in stock values. In fact, I think most gains for 2016 could occur in the 7 weeks following the elections so I am not expecting much as stocks and bonds in general could be “treading water” until early November. After November, I expect many investors will tune-up their portfolio to match the new policies with the new administration and depending on who wins, that could lead to some major changes in asset allocation.

 

 

If you become concerned about the volatility this year, please contact my office. There are other financial products, such as fixed annuities**, that can reduce volatility in your portfolio without having to put your money in a low-yielding money market or CD. I would be happy to discuss ways we can reduce stock market risk in your portfolio, if that is a strategy you are considering.

 

Just a Thought

 

“If you want your life to be a magnificent story, then begin by realizing that you are the author and everyday you have the opportunity to write a new page.”

 

 

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results.   This material contains forward looking statements and projections.  There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss in periods of declining values. **Guarantees are subject to the claims paying ability of the insurance company.

The S&P 500 Index cannot be invested in directly, and is unmanaged.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.

 

 

 

 

 

 

July 2016 Market Commentary by Darren Brennan
March 2016 Market Commentary by Darren Brennan

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