May 2016 Advisory Commentary

The overall markets ended the month of April with not much overall change, other than the Nasdaq posting a 1.94% drop. The one source of decisive movement was the oil market. West Texas Crude Oil finished April with an impressive 16.03% gain. This considerable recovery will continue to shore things up in the oil patch and likely aid S&P 500 earnings as we move through the remainder of the year, given the almost constant negative it’s been over the past 18-24 months.

With the S&P 500 about 2% away from new highs, the overwhelming sentiment is still rather dour. The recently released Barron’s Big Money poll found only 38% of money managers were bullish or very bullish. This was down from 55% last fall and 45% a year ago. In fact, this was one of the lowest readings in the poll’s more than 20-year history. The two biggest worries are earnings disappointments and an economic slowdown.

On an international note, earnings in Europe are falling sharply. STOXX 600 earnings are expected to drop 18% year over year (Thomson consensus), which is due to more than just energy. Performance in financials and consumer earnings has also been disappointing. Until earnings stabilize in the region, we believe it will be difficult for European stocks to produce a sustained period of outperformance so we remain cautious on developed foreign markets moving forward. Emerging markets, as volatile as they have been recently, still continue to seem more attractive from a risk/reward standpoint.

While most of our holdings are straddling “unchanged” for the year so far, we have seen distinct outperformance from our floating-rate bond allocation, as well as from the value stock sector. We continue to believe that it will be hard for the markets to push forward without a large catalyst of some kind.

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