April 2016 Advisory Commentary

Post Series: Advisory Commentary

The S&P 500 ended the month of March with a 6.6% gain, the largest monthly gain since October 2015. It was the best March since 2009. For the quarter, the S&P 500 was up 0.8%, which is all the more impressive considering at the lows it was down more than 10%. In fact, this was the first quarter since the Q4 1933 to see a reversal like that. The quarter ended with 13 straight days without a 1% move (up or down). Considering 26 of the first 48 days in 2016 had at least a 1% move, the disappearance of volatility is amazing.

The upcoming earnings season looks to be another negative one, as companies are set to deliver a 7% year-over-year decline in S&P 500 earnings for the quarter, the worst since the Great Recession and the third straight quarterly decline, based on Thomson data. this quarter may mark an inflection point in terms of the trajectory of earnings because the pressure from oil weakness and U.S. dollar strength is starting to let up. In fact, the U.S. Dollar has declined 5.1% over the last two months and oil shot up over 8.5% in March. This likely means that management teams’ popular excuses for explaining their previous shortfalls probably won’t work much longer.

Given that the government employment data continues to show relative strength in the face of mostly tepid economic data, the Fed seems to be content with forecasting a more gradual rate-hiking agenda as we move forward this year. With the rapid run-up in March, and given that it seems to have largely been done on the back of non-fundamental factors, we believe that we are likely to see another pullback coming in the weeks ahead. For now, we are holding to our conviction that a more moderate portfolio allocation would seem to be the most likely benefactor for the remainder of 2016.

Brian Weckman, RFC
Chief Investment Officer
Actis Wealth Management L.C.

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