April 2016 Monthly Outlook – It is a tale told by an idiot…
“It is a tale told by an idiot, full of sound and fury, signifying nothing.” From Macbeth
I am a fan of this quote from Macbeth and boy did it help me during the turbulent start to 2016 in the financial world. You may recall all the gloom & doom being reported in January and February 2016. Because almost everyone had a negative outlook and let their emotions drive their decision making, we saw the worst start to the year in stocks since the Great Depression. Stocks, as measured by the S&P 500, were down nearly 10% by the second week of February 2016, and the US economy was heading for a recession according to all the “smart” people.
Lo and behold, it turned out to be sound and fury, signifying nothing, as we closed out the 1st quarter with the S&P up 0.77%. While not impressive, it is certainly not the dire outcome everyone was worried about.
Throughout all the turmoil in the financial markets, US economic reports continued to remain stable. The most recent reports include the March 2016 employment report (4/1/16) showing payrolls increasing by 215,000 (vs. 205,000 estimate). The labor participation rate rose for the fourth straight month (to 63%, the highest since February 2014) as more people rejoined the workforce. Average hourly earnings also increased by 0.3% over February 2016, bringing the year/year gain to +2.3%. (Source: Bureau of Labor Statistics). March’s Institute of Supply managers (ISM) manufacturing index traveled back above 50 (51.8 from 49.5 in February and the 51.0 estimate), the University of Michigan’s consumer confidence report was also reported above the estimate (91.0 vs. 90.5 estimate), pending home sales increased by 3.5% in February over January 2016, and mortgage applications rose by 2.1% (+21% year/year). (source: National Assoc of Realtors)
So all is well, right?
On the US economy, I would say it is stable and growing modestly. On the financial markets, time will tell, as after April we head into a seasonably weak period from May through September (chart courtesy of Thompson Reuters and Raymond James & Associates).
The next big hurdle for the financial market is the 1st quarter of 2016 corporate earnings reports, which start to come out later this week. Current forecasts call for a 7%-8.5% decline in total earnings, but my guess is the earnings reports will not be as bad due to lowered expectations and year-over-year comparisons. The US dollar has weakened which will help draw earnings for companies that generate business internationally. The energy sector will continue to drag down overall corporate earnings, but excluding energy I anticipate flat results. If earnings miss expectations, I expect the market to pull back. Perhaps more important than the 1st quarter results will be the guidance companies give about their earnings going forward. As you can see from the chart below, the market is expecting a big uptick in in earnings starting in the 2nd quarter of 2016. If companies warn of lower earnings for the rest of the year, I think we will see a more negative market response. I am monitoring the situation closely and will respond accordingly.
April Calendar of Events (comments and additions for future months always welcome)
- April is National Autism Awareness month. Let’s all get educated on this issue and work toward acceptance and inclusion of people dealing with autism.
- April is also national Financial Capability month. We at Directional Wealth Management commit to equipping individuals with the knowledge and protections necessary to secure a stable financial future for themselves and their families.
April 10th Christian’s wife Maecy’s birthday
April 18th Tax Day—oh joy. Remember to make those IRA or Roth contributions.
April 22nd Earth Day—let’s recycle, turn out the lights when we leave the room, and do all we can for the environment
April 23rd Passover begins—wishing all a joyous Seder celebration
April 25th My daughter Satya’s birthday
April 27th Administrative Professionals day—remember your staff
I hope you find this report useful. Please share it with anyone you feel would benefit from the information.