Roller Coaster Ride for Markets in Early 2016

By Aline Wealth Management on May 4, 2016

2016 is starting off as a year of volatility in the markets—a roller coaster ride of triple digit moves both on the upside—and more importantly, on the downside.  The broad market is down more than 6% YTD—and we just started the year!

As I mentioned in a market observations email late last year, the poor breadth of the market in the last 6 months (where 10 of the largest stocks on the S&P were up some 17% and the balance—490 stocks—were down about 7%–HUGE divergence) is a canary in the coalmine for a market pivot away from indexing (indiscriminate buying of the broad index only—the largest, most liquid stocks) and towards value investing and stock picking.  I believe the recent action is the start of said pivot.

Where does that leave us?  As you are aware I have been (a somewhat lonely) voice of caution for some months now—avoiding large cap growth and overvalued “FANG” stocks and their ilk –and maintaining a substantial amount of dry powder.  I explained that when the market does correct (as it did in August) we would slowly, carefully and opportunistically deploy capital into attractive opportunities (those that are undervalued and unloved).  I also stated that we will not call a bottom – no one does—but that the playbook was to vet a list of attractive opportunities and have the conviction to leg-in overtime as the market provides that opportunity.  We have started doing so in August –paused as the market jumped in October and into the end of the year and now have resumed that “leg-in” process.

In 2016 we are looking at a market that stood witness to 8 years of nonstop QE and other manufactured programs (these were NOT organic growth drivers).  Contrasting the machinations of the last 8 years with the growth drivers from the 90s—in the latter we had top line growth, innovation through the roof (imagine life before cell phones?  The Internet?), budget surpluses, new emerging markets to exploit—the perfect storm of growth (Bill Clinton was so very lucky in that respect).  Of course the 90’s market went too high and a bubble formed—ending in a crash to start the new millennium.  Today we are staring at 8 years of in-organic, artificial growth drivers that are beginning to be pulled away (Fed moving towards normalization)—and there have been expected “bubbles” percolating along the way (i.e. “cash is trash”, TINA market, dividend stocks, valuations stretched across the board, etc.)—bubbles that need to be deflated.  That’s how markets work, the pendulum swings—and the seasoned investor seeks to get the in-between; never looking to sell at the top or buy at the bottom.

So, as stated above (“leg-in” process) I am not in any rush to jump in or to chase markets.  I see 2016 being a volatile year- but that can work in our favor as well.   I have studied and re-studied my list of favorite ideas—from infrastructure and water ideas to innovative utilities (Yes, Virginia there is such a thing!) and discounted, under-valued special situations.   Investments with a measured downside (due in large measure to their relative undervaluation) and a strong upside— “grinders of returns”.

Happy to discuss.  Also happy to embark on the financial planning process—providing you with a road map for the next 5, 10 , 20 years— good stuff in every market—need to have a plan!

Please take a look at the videos below—

How we invest:   https://www.youtube.com/watch?v=dNPwhEl3egI&feature=player_embedded

The Importance of planning and diversification: http://mediahub.financialpicture.com/view/8775/2541