News


Mid-Quarter Market Review



John Fischer, CFA®, CFP®

As President Trump’s first month in office comes to a close, there has been much debate about the policies his administration plans to implement.  The debate has ranged from the structure of proposed policies to what Congress might approve and on what timeline.   While there is still considerable uncertainty surrounding policy implementation, the market continues to be optimistic about what President Trump’s policies will mean for business and the economy.

The major U.S. indices carried their post-election momentum into the new year with the S&P, Dow, and Nasdaq all setting new record highs.  After being a hot button topic to finish the year, the Dow finally pushed through the 20,000 level in late January.  Having the Dow ascend above the 20,000 level is a positive for investors if for no other reason that it draws their focus back to important market indicators such as economic growth and corporate earnings.  Small-cap and mid-cap indices have also continued their good run to begin the year.  After lagging U.S. large cap indices last year, international developed equities have kept pace to start the year while emerging markets lead all major asset classes up roughly 10% to date.

On the heels of Apple and Facebook setting all-time record highs, information technology has been the best performing sector to begin the year up nearly 10%.  Financials, industrials, and materials continue to do well as investors pile into these sectors with the belief that President Trump’s policies of deregulation and infrastructure spending will benefit each sector significantly.  Meanwhile, energy has been the worst performing sector year-to-date down about 6% as several industry titans, Exxon Mobil and Chevron, missed their fourth quarter earnings projections.

As of the close of last week, more than 80% of S&P 500 companies have reported fourth quarter earnings with encouraging results.  The blended earnings growth rate is 4.6% on a year-over year basis, which is above the estimated earnings growth rate of 3.1% leading into fourth quarter earnings.  The blended rate combines the earnings of companies that have already reported with the expected earnings of companies yet to report.  The S&P 500 is on pace for two consecutive quarters of positive year-over-year earnings growth for the first time since Q4 2014 and Q1 2015.1

Many investors have been focusing on President Trump’s policies and their potential to drive economic activity.  Given that backdrop, it is easy to overlook the fact that respectable economic numbers have supported the recent market rally.  The jobs report and manufacturing index released in January both illustrated an expanding economy.  The unemployment rate is below 5% and GDP is trending upward, albeit more slowly than preferred.  These positive economic results along with solid fourth quarter earnings illustrate the improving health of the U.S. economy prior to any policy initiatives by the new administration.

Since President Trump was elected, the market has posted healthy gains from rising expectations of pro-business policies including deregulation, tax reform, and infrastructure spending.  While we are likely to see some traction in each of these areas, the size, shape, and timing of each policy is still very much unknown.  Furthermore, some policies such as a border tax could have unintended consequences to the economy should it spark a trade war.  The uncertainty surrounding the administration’s policies suggests that we are likely to see more market volatility in the future as policies are unveiled.  It is this uncertainty that should serve as a reminder to investors that speculating with your portfolio based on policy projections is a dangerous game given the unpredictable nature of both the outcome and the reaction of the market.  After all, many market experts predicted President Trump would lose the election and if by chance he were to win that the market would see a correction.  The consensus was wrong about both the election outcome and the market reaction.  This lesson serves as an important reminder that investors should focus on diversification, which serves as the best medicine for uncertainty by managing risk and maintaining a long-term perspective.

 

Source: 1 FactSet


Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this Article shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this Article serves as a substitute for personalized individual advice. Information contained in this Article may have been derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.


Fourth Quarter Market Review



John Fischer, CFA®, CFP®

John Fischer, CFA®, CFP®

History has taught us that presidential elections often increase market volatility in the short-term.  The 2016 election proved to be no exception with the surprising victory by President-elect Trump.  Mr. Trump’s election, coupled with just the second interest rate increase by the Fed in the past ten years, provided the backdrop for a surprising finish to 2016.  The response by the markets left investors wondering if 2017 will sing a similar tune or if markets have come too far too fast given the policy and political risks that exist entering the new year.

The Dow led all large-cap indices in the fourth quarter finishing up almost 8% while the S&P 500 and Russell 1000 indices posted more moderate gains just above 3% for the quarter.  Much attention has been given to the Dow of late due to its fourth quarter performance and its push towards 20,000.  The Dow’s recent outperformance can be mostly attributed to several high-priced stocks performing very well in the index.  Given the Dow consists of only 30 stocks and is a price-weighted index, the performance of a small group of high-priced stocks can cause the Dow index to distort the performance of the large-cap sector as a whole.  Additionally, investors would serve themselves well to ignore the noise of Dow 20,000.  History has taught us that while round numbers make for entertaining news, they have little predictive value to the future direction of the market.

Small and mid-cap sectors had a strong fourth quarter finishing up nearly 11% and 7%, respectively.  Small and mid-cap companies’ borrowing costs are less impacted by higher interest rates than large-cap companies.  Thus, when rates rise like they did in the fourth quarter, investors tend to favor small and mid-cap sectors over large-cap stocks.  Other catalysts for the small and mid-cap sectors include a strong U.S. dollar as well as Trump’s policy rhetoric for less regulation and corporate tax reform.

Looking beyond the U.S., global returns were slightly negative for the quarter.  The MSCI EAFE index, which tracks international stocks in developed markets, ended the quarter down 1%.  While monetary policy across much of the globe continues to be accommodative to stocks and valuations remain attractive, many developed countries remain stuck in a slow growth pattern.  A strong U.S. dollar should benefit many of these countries with increased demand from U.S. consumers.  However, political risks in the form of rising populism following Brexit, Mr. Trump’s victory, and the Italian referendum bring increased risk to many of these markets.  Emerging markets were down more than 4% during the fourth quarter after a strong start to 2016.  Investors shied away from the asset class due to concerns that Mr. Trump’s protectionist agenda may harm their export-based economies.

Since touching historical lows following the Brexit vote in late June, interest rates have been on a steady climb thanks to a U.S. economy that is expanding and Mr. Trump’s expected pro-growth policy initiatives.  With low unemployment, improving labor wages, stronger corporate earnings, and rising GDP, the improvement in the U.S. economy has helped boost interest rates on the 10 year U.S. treasury bond by nearly 1% from its summer bottom.  Given the improving economy and Mr. Trump’s pro-growth policy plans, it’s conceivable that rates could continue to climb into 2017, though we would caution against any expectation of a sharp move higher given the deliberate pace of economic growth and relative attractiveness of U.S. interest rates compared to other developed countries.  Even with the potential for a further rise in interest rates, bonds remain a valuable piece of a balanced portfolio.  Bonds often perform better than stocks during market downturns, thus offering valuable diversification benefits for investors.

Much has been made of the value of the U.S. dollar recently given its 14 year high.  A rise in interest rates continued the dollar’s ascent in the fourth quarter.  A strong dollar is a headwind for multi-national companies located in the U.S. as it makes their products more expensive in the global marketplace.  In turn, a strong dollar helps companies outside the U.S. by making their products cheaper to U.S. consumers.  With interest rates rising and the U.S. economy starting to show signs of expansion while global growth remains lackluster, the value of the dollar is unlikely to see a dramatic reversal in the near future.

As President-elect Trump takes office, investors will be closely watching his first 100 days to discern which campaign promises were fact and folly.  The markets have had a strong reaction to the pro-growth policies he is expected to enact which include deregulation, corporate and individual tax reform, and increased infrastructure spending.  Investors would be wise not to overlook the risks of his presidency which include protectionist and anti-immigration views, lack of political experience, and sometimes unpredictable temperament.  Furthermore, his pro-growth policies will take time to enact and some may be challenged by established members of his own party in Congress that have long been wary of increased infrastructure spending or increasing the federal deficit.

Like thunder follows lightening, a wide array of new investment outlooks and predictions follow the turn of the new year.  Before getting too consumed by the vast number of predictions, take a look back at last year’s forecasts.  How many strategists predicted that the U.K. would vote to leave the European Union?  How many experts predicted that Donald Trump would be the 45th President of the United States?  If that’s not sufficient, how many analysts predicted that markets would actually move higher following either one of these surprising outcomes, let alone both?  Annual market predictions from experts are reminiscent of a game of darts among friends.  A few tosses completely miss the board, others barely hit the outer ring, some are good shots, and once in a blue moon someone hits a bullseye.  Rather than betting on which prediction will hit the bullseye this year, investors would be better served maintaining a long-term perspective and working with their financial advisor to make sure their investment strategy aligns with their financial goals.


Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this Article shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this Article serves as a substitute for personalized individual advice. Information contained in this Article may have been derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.


Mid-Quarter Market Review



John Fischer, CFA®, CFP®

John Fischer, CFA®, CFP®

What a difference a week makes.  Had we discussed the current quarter prior to the U.S. presidential election last week, the narrative would have been focused around major U.S. equity markets struggling to begin the quarter in light of mixed economic data and interest rates trending higher with the expectation of the Federal Reserve raising rates in December.  Following an unexpected victory by Donald Trump in the presidential election last week, the focus has now shifted towards deciphering what a Trump victory will mean for the U.S., the economy, and financial markets.

With their strong performance last week, both the S&P 500 and the Dow erased early fourth quarter losses. Both indices surged approximately 5% on the week. Small-cap and mid-cap indices have continued their strong year-to-date performance with support from rising interest rates as both sectors have posted solid double digit gains in 2016.

International stocks have come under pressure thus far in the fourth quarter. Emerging markets were among the hardest hit last week on the news of Mr. Trump’s victory as investors expressed concern that his protectionist policies could significantly harm their export business.

From an industry sector perspective, the victory by President-elect Trump has caused a ripple effect as investors attempt to determine how his policies could affect various industries. Financials, industrials, materials, and health care have all been clear winners since the election on the heels of Mr. Trump’s campaign promises of easing regulation, infrastructure spending, and income tax cuts. Utilities, real estate, and consumer staples have all struggled as interest rates have moved higher due to projected increased fiscal spending and lower income taxes.

The third quarter and beginning of the fourth quarter brought a subtle increase in interest rates as investors braced for the likelihood of the Federal Reserve raising interest rates again before year-end.  Mr. Trump’s victory has sent the increase in interest rates higher across the yield curve in the past week as investors believe his promises of lower taxes and increased fiscal spending to improve the country’s infrastructure will drive the budget deficit higher and thus increase U.S. interest rates. Furthermore, investors expect Mr. Trump’s pro-growth fiscal policy will indeed spur economic growth and inflation thereby causing interest rates to rise and the Fed to raise rates sooner than expected.

While the 10-year treasury yield began the fourth quarter at 1.60%, its yield has risen from 1.83% to near 2.20% since the day of the election. Comparably, the 30-year yield began the fourth quarter at 2.32% and has pushed above 2.90%, having climbed from 2.60% since the day of the election.

Overshadowed by the presidential election, third quarter corporate earnings reports have been quite good. As of November 11th, 91% of S&P 500 companies have reported third quarter earnings with 71% of those companies beating consensus earnings estimates. With a blended earnings growth rate of 2.9%, which includes companies’ earnings that have already reported and consensus estimates of companies yet to report, the S&P 500 is on track for its first quarter of year-over-year earnings growth since the first quarter of 2015.

As we head towards the close of 2016, the market will be closely watching as President-elect Trump sets his administration and begins to prioritize his presidential initiatives. While we have seen strong market reaction in some sectors as a result of Mr. Trump’s presidential victory, we would caution investors from getting overly aggressive in making sector bets for several reasons. History has proven many campaign policy promises to miss the president’s priority list once in office. Additionally, although the Republican party controls both chambers of Congress, it has been well documented that Mr. Trump and parts of the Republican party have very different policy views that may make it difficult for Mr. Trump to implement some of his policies. Lastly, a month ago market experts believed a Clinton victory was all but guaranteed and in the slight chance of a Trump victory, the market’s reaction would be a sharp sell-off in equities and rally in bonds due to the uncertainty that surrounded Mr. Trump’s policy plans. Neither of these likelihoods came to fruition. This lesson serves as yet another reminder that when it comes to investing, investors are better served focusing their time and effort on what they can control such as building a financial plan, focusing on diversification, and understanding their risk tolerance rather than how to profit on an “expected” market outcome.

Model Portfolio Changes

 Moving forward, we will communicate changes to our model portfolios as part of the mid-quarter update. As part of our third quarter review, the Investment Committee voted to implement the following changes to our model portfolios.

  • Remove Deutsche CROCI International fund (SCINX) from the Tax Advantage model. Proceeds will be allocated to the two remaining international developed funds in the
  • Remove Deutsche Managed Municipal Bond fund (SCMBX) from the Tax Advantage model. Proceeds will be allocated to the remaining municipal bond funds in the Tax Advantage
  • Remove the IQ Hedge Multi-Strategy Tracker (QAI) from the ETF model. Proceeds will be allocated to the Vanguard Intermediate-Term Corporate Bond Index (VCIT).

Source: FactSet

 

 


U.S. Presidential Election Update



John Fischer, CFA®, CFP®  | Chief Investment Officer

John Fischer, CFA®, CFP®

In a result that many thought was an improbable outcome as recent as yesterday, Donald Trump has been nominated as the next president of the United States. The markets responded initially with a similar surprise to the news as U.S. stock futures were down as much as 5% in the early morning hours as it became evident Mr. Trump would be victorious. They have since recovered those losses following Mr. Trump’s conciliatory acceptance speech with both the Dow and S&P 500 indices opening trading near yesterday’s close. Safe haven assets, such as gold and the Japanese yen, also spiked higher on the election news but are off their highs in early trading. The market’s resiliency suggests investors may have learned some valuable lessons from the panic selling that took place following the surprising outcome of the Brexit vote in late June.

Heading into election day, many believed a victory by Hillary Clinton was merely a formality. Polls had suggested that while her lead had narrowed in the week leading up to the election that she still maintained an adequate margin over Mr. Trump. Respected websites tasked with predicting the outcome of the presidential election put the odds of Mrs. Clinton winning as high as 80%. The market reflected this confidence in a Clinton victory as equity markets soared earlier this week on the news that the FBI would not pursue any additional charges in their most recent review of her email debacle.

If investors have learned anything from the surprise outcome of the Brexit vote this summer, it would be to avoid making emotional, rash decisions with regard to their investment portfolio on the heels of a political vote. In the two days following the unexpected result of the Brexit vote, the S&P 500 fell by more than 5% sending investors racing for the exit as the uncertainty of the election outcome loomed large. A mere three days later, the S&P 500 had surprisingly recovered its heavy losses to pull within 1% of its pre-Brexit levels.

While there is still much to be decided about the ultimate outcome of Britain’s decision to leave the European Union, thus far the economic numbers suggest that the fear was greater than reality.  While no two elections are exactly alike, the aftermath of the Brexit vote serves as a reminder to all investors that panic is never a wise investment strategy.

As Mr. Trump prepares to enter the White House, there is much uncertainty surrounding both his foreign and domestic policies, which was evident in the market’s initial response to his victory last night. Like the outcome of the Brexit vote, we will not know the effects of Mr. Trump’s policies for quite some time.

While the Republican party now controls both the Senate and the House of Representatives, Mr. Trump’s path to implementing his policies is far from clear. He will be forced to negotiate with some of the established Republicans that rejected his campaign.

In the short-term, there is the potential that the Federal Reserve will decide to keep interest rates the same at their December meeting in light of the market uncertainty from the surprising election results. In an indication that the market is digesting the implications of a Trump presidency, bonds are actually negative this morning despite the market volatility. Usually, bonds outperform during market uncertainty as they are considered a safe haven asset. In this case, interest rates are rising on the long end of the yield curve as investors brace for the potential of higher rates due to Mr. Trump’s promises to increase infrastructure spending and cut income taxes, which could further increase the deficit.

While investors are often tempted to suggest that this market event is different, it’s important to put the results of the election into historical context. While presidential elections have proven to increase short- term market volatility, the long-term effect on market returns based on which party wins the election and control of Congress has been negligible. Over the long-term, market fundamentals such as earnings growth, valuations, and interest rates are much more predictive of market returns. As such, we would advise clients to ignore the short-term market noise, focus on their long-term portfolio objectives, and look for opportunities should the market uncertainty provide it.

 


2016 Third Quarter Market Review



John Fischer, CFA®, CFP®  | Chief Investment Officer

John Fischer, CFA®, CFP®

John Fischer, CFA®, CFP®

The first half of 2016 brought volatility to the markets in the form of an early year correction and turmoil surrounding the Brexit vote.  For investors looking for a break from the action as they said goodbye to summer, the third quarter provided exactly that.  While volatility has been trending in a downward direction as we enter the fourth quarter, history suggests that the impending presidential election is likely to change that market trend.

The third quarter was a solid if unspectacular one with all major US indices posting gains for the quarter.  Both the S&P 500 and Dow Jones Industrial Average had low single digit returns for the quarter as the market benefited from the Federal Reserve opting to leave the fed funds rate unchanged again in the third quarter.  Both indices are up roughly 5% year-to-date.  The NASDAQ index led the major indices in the third quarter finishing up over 9% thanks to strong performance in the information technology sector.  The S&P small cap index ended the quarter up more than 6% as interest rates bounced off of their post-Brexit lows, thus providing a tail wind for small cap stocks.  Mid cap stocks finished the quarter up almost 3%.

International equities had a strong third quarter on the heels of continued accommodative policy by central banks across the globe.  Large cap international stocks posted a 5% return for the quarter, outperforming US large caps in the process.  Global markets were a benefactor of the continued effort of central banks to keep interest rates near or below zero in hopes of jump starting their respective economies.  Europe had a bounce back quarter finishing up near 5% while Japan was up more than 7% in the third quarter.  After a very weak start to the year, emerging markets were up 8% for the quarter and are now up approximately 13% year-to-date.

In the third quarter, we saw interest rates come off their second quarter lows on the heels of the Brexit vote as yields on treasury bonds rose more than 20 basis points, or 0.2%, across the yield curve.  The Barclay’s U.S. Aggregate Bond Index, which is comprised of higher quality investment grade bonds, still managed to finish up 0.46% for the quarter despite the rise in interest rates.  It is a very timely opportunity to remind investors that high quality bonds can still produce a positive return in a rising interest rate environment due to the income they produce as well as credit spread tightening that often occurs with high quality bonds that are bench-marked to US treasury bonds.

The backdrop of a rise in interest rates explains much of the sector performance for the third quarter.  Information technology was the top performing sector for the quarter up more than 12%.  Financials, industrials, and materials were the best of the rest in the third quarter.  Each of these sectors has historically performed well when interest rates rise.  Conversely, telecom and utilities both lost more than 6% as the worst performing sectors of the third quarter.  Both sectors pay attractive dividends and have done well in the recent low interest rate environment but tend to struggle when interest rates rise as other income generating investments become more attractive.

As the fourth quarter begins, investors will shift their attention towards the upcoming presidential election.  An unequivocal truth of investing is that markets dislike uncertainty.  Look no further than the Brexit vote for evidence.  An election by its very definition breeds uncertainty.  It is this uncertainty that results in higher market volatility before and immediately following presidential elections and why higher market volatility in the fourth quarter should come as no surprise.  Political preferences aside, the market views Donald Trump’s policy agenda with greater uncertainty than that of Hillary Clinton.  As a result, the market is likely to display more volatility if Mr. Trump’s campaign proves to be a worthy challenger to Mrs. Clinton’s campaign leading up to the election.  The same would hold true if Mr. Trump were to indeed win the presidential nomination.

Some investors are concerned about the impact to the market of each candidates’ proposed policies.  It is important to note that if the Republican party wins the majority in the House of Representatives as is expected, it would make it unlikely that either candidate would be able to enact their bolder campaign promises.  While Mrs. Clinton would struggle due to bipartisanship, Mr. Trump would likely meet opposition in the form of the Republican establishment in the House where Speaker of the House Paul Ryan would likely attempt to dilute Mr. Trump’s more aggressive proposals.  For investors, the most important consideration for the upcoming presidential election is to consider their own investing time horizon.  While presidential elections have proven to increase short-term market volatility, the long-term effect on market returns based on which party wins the election and control of Congress has been negligible.  Over the long-term, market fundamentals such as earnings growth, valuations, and interest rates are what drive market returns.  As a result, we suggest clients focus on what they can control, which is to make sure their portfolios are properly diversified and aligned with their objectives and risk tolerance as we lead up to what figures to be a more volatile final quarter of 2016.


Mike Clark, CMFC® and Troy Hedman, CMFC®, CRPC® join Visionary Wealth Advisors



EDWARDSVILLE, IL – Visionary Wealth Advisors further expanded its growth in July with the addition of industry veterans Mike Clark, CMFC® and Troy Hedman, CMFC®, CRPC® as Senior Wealth Management Advisors.

Mike and Troy have a combined 39 years of experience in the financial services industry. Both joined Visionary from The Mutual Fund Store where they each served as a Senior Vice President – Investments. Together, they have formed The Servant Financial Group within Visionary Wealth Advisors and will provide investment management and financial planning, with an emphasis on retirement planning and post-retirement income strategies.

Visionary CEO and Founder, Brett Gilliland describes the addition of Clark and Hedman, “Mike and Troy are great people through and through. Their values are perfectly aligned with our firm’s values of faith, integrity, excellence, growth, and community. We are incredibly excited to have them join the Visionary family and watch them serve their clients with their experience and in-depth knowledge.”

Visionary Wealth Advisors currently has offices in Edwardsville, IL, St. Louis, MO and Miami, FL, with a new office just constructed in O’Fallon, IL. Plans are underway to open additional offices throughout the US.

Visionary Wealth Advisors is an independent Registered Investment Advisor, founded in March 2014 by Brett Gilliland and Tim Hammett. Visionary Wealth Advisors provides a visionary approach to all aspects of financial planning and wealth management including retirement, college and estate planning, life, disability and long term care insurance and small business retirement plans.

For more information, visit VisionaryWealthAdvisors.com.

xxx


2016 Second Quarter Market Review



John Fischer, CFA®, CFP®  | Chief Investment Officer

John Fischer, CFA®, CFP®

John Fischer, CFA®, CFP®

The second quarter began with a focus on the Fed and how many interest rate hikes we would see in 2016.  At the time, the Fed was still forecasting two additional rate increases this year.   But a very disappointing employment number in early June quickly cast significant doubt on the Fed’s forecast.  Shortly thereafter, the United Kingdom (UK) voted to leave the European Union (EU) in an event termed the Brexit.  The outcome of this vote caught many investors by surprise and as a result stirred global markets.  Suddenly, a quarter that began with all eyes on the Fed shifted to investors wondering what the impact of the Brexit would be to their portfolios.

Despite the market volatility that followed the Brexit vote, many asset classes finished the second quarter with solid results.  The S&P 500 index finished the quarter up 2.46%, less than 2% below its all-time high set last year.  Stock market returns had a volatile end to the quarter as the S&P 500 dipped more than 5% in the two days following the Brexit vote before making a solid recovery to close the quarter.  U.S. small and mid-cap stocks also posted gains in the second quarter, each finishing up more than 3%.  The MSCI EAFE index, which tracks international mid and large cap stocks, ended the quarter down only 1% after falling by 10% in the two-day selloff following the Brexit vote.  Emerging market stocks finished up 0.66% for the quarter.

Energy, telecom, and utilities led all sectors in the second quarter, each posting a return above 6% for the quarter.  The combination of increased demand and supply shortages helped bolster the energy sector while investors continued to aggressively purchase stocks with stable, attractive dividends in the telecom and utility sectors.  The financial sector has been the worst performing sector year-to-date down over 4% as bank profit margins continue to be squeezed by the persistent low interest rate environment.

The Brexit news and its accompanying uncertainty provided a boost to bonds as investors piled into high quality bonds as a safe haven to riskier asset classes. 10 year treasury yields finished the quarter near historical lows at 1.49%, down from 1.83% to start the quarter.  The Barclay’s U.S. Aggregate Bond Index, which is comprised of higher quality investment grade bonds, finished up 2.21% for the quarter.  High yield bonds, which carry greater risk than investment grade bonds, also finished up 3.6% despite pressure from the Brexit event.

Some investors may be tempted to speculate that U.S. interest rates cannot go much lower.  Bond yields in Switzerland, Germany, and Japan (just to name a few) would suggest that to be a false assumption as interest rates in these countries are either near 0% or negative.  Bonds with negative yields will return less money to the investor at maturity than what the investor originally invested.  As of June 30th, an astounding 77% of global sovereign debt yielded less than 1% with almost half of that debt carrying a negative yield.  Central banks across the globe continue to use all the levers at their disposal to keep interest rates low (or negative) in hopes of igniting their respective economies and avoiding recessions.  These accommodative policies have also served as catalysts of support for the equity markets, at least to this point.  Ultimately, these low rates continue to make U.S. interest rates attractive to global investors, which puts continued pressure on U.S. bond yields.

The quarter that began with a question of how soon the Fed would move to raise interest rates again finished with renewed uncertainty that has the market expecting the Fed to keep rates unchanged into 2017.  While equity markets have recovered nicely following the Brexit turmoil, there is still considerable uncertainty among investors as illustrated by the continued outperformance of so-called safe haven assets such as treasury bonds, commodities, and Japanese yen.  As the third quarter begins, investors will turn their attention to second quarter earnings season.  Despite improved consumer strength on the heels of stronger wages and declining energy prices, the market will be seeking to break a string of four consecutive quarters of declining corporate profits.  Meanwhile, investors will continue to pay close attention to the uncertainty surrounding Brexit and how it may impact future growth and corporate earnings in the EU, the UK, and their trading partners across the globe.

 


The Brexit



United Kingdom votes to leave the European Union

John Fischer, CFA®, CFP®  | Chief Investment Officer

John Fischer, CFA®, CFP® | Chief Investment Officer

John Fischer, CFA®, CFP®

What we know – Early last Friday morning, final votes were tabulated in the United Kingdom (UK) confirming that voters had surprisingly chosen to leave the European Union (EU) by a narrow margin of 52% in favor of leaving versus 48% opposed.  Shortly thereafter, British Prime Minister David Cameron announced his resignation.  It should be noted that the referendum that passed is not legally binding.  Parliament must still pass the referendum.  Additionally, the process for the UK to leave the EU may take up to two years, which leaves the door open for negotiation between the two sides to find resolution without the UK leaving the EU.

What is the European Union?  The EU is a collection of 28 independent countries in Europe that formed a political and economic agreement which allows free movement of goods, capital, services, and people between member states.  Simply put, it is an agreement between the member countries that is designed to make each country better off as part of the group than they are individually.  The UK was the second largest member country in the EU as measured by gross domestic product (GDP).

Why the UK voted to leave the EU?  There were several reasons voters cast their ballot in favor of leaving the EU.  The three largest catalysts for voting to leave the EU were:

  • The political agreements that form the EU had pulled the UK too far away from their political beliefs and ideology, which materially impacted their own political independence
  • There was concern that the influx of immigrants into the EU from Middle East and Africa would put unsustainable pressure on the UK’s social services and labor market
  • Some Britons believed that the strong regulatory structure of the EU and the annual payment that the country was required to make to be part of the EU created more of a burden to the UK economy and its growth prospects than a benefit

How have markets reacted?  The market has had a swift and strong reaction to the news.  Over the past week, equity markets rallied on the belief that the UK would vote to stay in the EU.  The market had priced in a vote by the UK to stay.  With that vote not coming to fruition, investors are now repositioning themselves in light of the results of the vote that came as a surprise.  The result is investors are buying perceived quality, or safe haven, investments like bonds and commodities (i.e – gold) and selling riskier assets like equities and emerging market investments.

What will we see in the market moving forward?  In the short-term, investors can expect to see more market fluctuations given how many investors were caught off guard by the results of the vote.  This volatility is likely to be exacerbated by the uncertainty that comes with this type of decision, namely that it could take up to two years to restructure all of the trade and political agreements for both the UK and the EU.  How that process will go and what it will mean for the UK, the rest of the EU, and all of their respective trading partners across the world cannot be known right now.  This type of uncertainty causes investors to sell risky assets now and ask questions later.

What does this mean for the EU and rest of global economy?  For the EU, the immediate question is how will it function after losing its second largest member in terms of GDP.  This vote has been coming for many months so one would expect the leaders of the EU to have discussed this exact possibility and what steps they would take if the vote was for the UK to leave the EU.  Additionally, investors will be watching to see if this vote causes factions in other countries in the EU to consider holding a similar referendum to vote on staying in the EU, which would call into question the long-term viability of the EU and possibly the euro currency.  For the rest of the global economy including the US, the impact of this decision centers on how business agreements will change between companies in the EU, the UK, and outside of Europe once the divorce takes place.  This uncertainty of what the new world will look like will likely hamper business investment in the near term, which would hurt economic growth and as a result put continued pressure on global equity markets.  At this point, it’s too early for anyone to definitively say what effect the UK’s decision to leave the EU will ultimately have on the UK, the EU, and the global economy.  It’s this uncertainty that is causing investors to sell risky assets and buy higher quality assets.

Recommendations for Clients – For clients with concerns about what this news means to their portfolio, now is a good time to speak with your financial advisor to review your financial plan including investment objectives, risk tolerance, and time horizon.  It’s important to remember that panic is not an investment strategy.  For clients with a long-term time horizon, this news should not alter your financial plan.  It is in fact these types of market surprises that serve as a reminder why it is important for investors to own portfolios that are well diversified among different asset classes.

Market uncertainty creates opportunity for investors.  For clients looking for an opportunistic time to invest, this may be a good time to set up a dollar cost averaging program.  If the market drops further, your next investment will be at an even better price.  As investors, we cannot predict the future so we must plan for that uncertainty and focus on what we can control.  That means making sure your financial plan is appropriately aligned with your personal investment objectives, risk tolerance, and time horizon.

 

 

 

This Article is provided by Visionary Wealth Advisors (“VWA” or the “Firm”) for informational purposes only. By accessing or otherwise using this Article, you agree to be bound by the terms and conditions set forth below.  Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, this Article shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume this Article serves as a substitute for personalized individual advice. Information contained in this Article may have been derived from third-party sources that VWA believes to be reliable; however VWA does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by VWA, and the Firm is not responsible for the content of any such websites.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.


Visionary Wealth Advisors Forms Strategic Alliance for new Merger & Acquisition Division



EDWARDSVILLE, IL – Visionary Wealth Advisors, a wealth management firm founded in March 2014, just announced a strategic alliance with Turning Point Advisors, a St. Louis based merger and acquisition firm. The alliance will provide a more holistic level of professional services for Visionary clients needing advice and expertise in selling their businesses. The new alliance will be called Visionary Mergers & Acquisitions.

Visionary founders Brett Gilliland, Tim Hammett, and Turning Point Advisors principal, Barbara Hartung formed the alliance based on overall benefits to their respective clients, their shared mission, values, and philosophies on client service. Both firms are independent, with no ties to any financial entity, and take a fiduciary responsibility to always operate in their clients’ best interest.

Barbara Hartung has 25 years of experience in buying and selling businesses. She is an attorney, practiced as a CPA, and is an area expert in mergers and acquisitions. Although she no longer practices law or accounting, these backgrounds give her an understanding of the business sale process that is unique in the industry. She will join Visionary as a Managing Director.

“This alliance is unique to the St. Louis area,” Hartung said. “Business owners can now have their trusted wealth advisor to plan and manage their financial life, and when they want to sell their business, they have that expertise on the same team, who can see the whole picture.”

Visionary Wealth Advisors focuses on the personal and financial position of the client who is considering selling their business. “We look at our client’s goals, the makeup of the business, the management team, current and future sales, etc. We also look at the emotional side – are they ready to step away from a business that’s been a major part of their life?” Gilliland explained.

“Most business owners are lost when selling their business,” said Hartung. “They don’t know how to get the best value or find the right buyer. We have the expertise to know when an offer is right, and we’ll never advise a client to accept an offer that we don’t feel is in their best interest.”

The strategic alliance brings Visionary closer to their ultimate goal of having a full suite of financial services in one place.

“Most business owners have spent their lives re-investing in their business, but not for their own retirement and financial situation,” said Gilliland. “Now with Visionary Mergers & Acquisitions helping them sell that business, we can utilize our strengths with Visionary Wealth Advisors and Visionary Family Office to help that client plan for the next chapter of their life. We help with investment planning, estate planning, tax planning, and family governance – which is very important to a client who just sold a business. That client wants to make sure the family is ready for the increase in wealth. They want to provide for the next generation, but also make sure the recipients become productive members of society. Our team can help them from a 360° view – before, during and long after the sale of that business.”

Visionary Mergers & Acquisitions will serve clients anywhere in the United States, who own private, closely held businesses valued at $5 million to $200 million. Visionary Wealth Advisors currently has offices in Edwardsville, IL, St. Louis, MO and Miami, FL, with a new office under construction in O’Fallon, IL. Plans are in the works to open additional offices throughout the United States.

Visionary Wealth Advisors is an independent Registered Investment Advisor, founded in March 2014 by Brett Gilliland and Tim Hammett. Visionary Wealth Advisors provides a visionary approach to all aspects of financial planning and wealth management including retirement, college and estate planning, life, disability and long term care insurance and small business retirement plans.


Visionary Wealth Advisors Adds a New Managing Director, Selden Martin



EDWARDSVILLE, IL – Visionary Wealth Advisors, a wealth management firm founded just over a year ago, is rapidly growing and has just added a new Managing Director, Selden K. Martin, who is now serving out of the firm’s St. Louis office in Brentwood.

Martin has over 30 years of experience as a financial advisor and senior executive in the wealth management industry, much of that with Merrill Lynch. Martin joined the Visionary team from Altius Learning where he worked with some former Merrill Lynch colleagues as a Partner and Principal to deliver evidence-based training to industry advisors and managers.

Martin will serve a dual role at Visionary. As a Managing Director, he will help guide the continued growth and direction of the firm and train advisors. He will also return to his roots as a Senior Wealth Advisor, working directly with clients to develop goals-based wealth management plans.

“After many years with larger, traditional financial services firms, I believe that clients are now better served in an environment that is free of the conflicts and sales pressures that are associated with firms that originate proprietary product,” Martin explained. “After much due diligence, I have found that Visionary Wealth Advisors is aligned with my personal and professional values to include delivering objective, goals-based advice. With their current growth plans and trajectory including the addition of family office capabilities for the affluent, I am confident in our ability to deliver best in class, wealth management solutions to clients.”

Visionary Wealth Advisors is an independent Registered Investment Advisor, founded in March 2014 by Brett Gilliland and Tim Hammett. Visionary Wealth Advisors provides a visionary approach to all aspects of financial planning and wealth management including retirement, family office services, college and estate planning, life, health and disability insurance and small business retirement plans. Visionary Wealth Advisors’ home office is in Edwardsville, IL, and has offices in St. Louis, MO and Miami, FL. Visionary has broken ground on an office in O’Fallon, IL, which is scheduled to open in summer 2016.