2016 was volatile and news heavy year for the markets. The year started with a market correction over concerns of the Chinese Economy slowing. In June we had Brexit, where the UK voted to leave the European Union. The year ended with a market rally from the news of Trump's surprise Presidential victory. The year ended with the S&P 500 up 11.9%, international markets up 1.5% and the yield on the 10 year treasury was 2.45% up from 2.31% a year earlier.
For the third quarter the S&P 500 was up 2.9%, year to date the index is up 7.8%. The 10 year treasury is currently yielding 1.6% which is down from 2.27% at the start of the year. The best performing sectors of the market this year have been energy and telecommunications while the laggards have been financials and health care.
While it’s been a bumpy ride the S&P 500 finished the midyear point up 3.5% and global equity markets were -5%. The averages had been trending higher for most of the 2nd quarter until June 23rd when the markets were caught off guard when the UK announced they had elected to leave the European Union. This caused interest rates to decline to a 1.57% yield on the 10 year treasury, down from 2.57% a year ago. The S&P is now trading at 16 expected earnings which is just below historical levels. Telecom and Utilities were the best performing sectors of the market while health care and financials were laggards.
The first quarter of 2016 continued to be quite volatile for the equity markets. With concerns over a slowing Chinese economy and a continued slide in energy prices, the US markets were off as much as 11% by mid February. Since that time, with the help of better than expected corporate earnings and continued strong US economic numbers, the markets rallied through the end of the quarter, finishing up almost 1%. Fixed income remains challenging in that interest rates are still at historically low levels with the ten year treasury yielding 1.8% versus the long-term average of 4.6%.
2015 was a challenging year for both the equity and fixed income markets. A combination of lower commodity prices, a slowing international economy, a rise in interest rates and a narrow equity market made investing difficult. While the S&P 500 was up 1%, the Russell 2000 was -6% with more than 65% of companies in the index down by more than 15%. Fixed income yields are still at historically low levels with the 10 year treasury yielding just 2.25%. Going into 2016 there are a number of opportunities in certain asset classes and sectors that are trading at historically low levels. Our belief is that by having a diversified portfolio of stocks, mutual funds and fixed income and following our process of identifying good businesses that are out of favor will result in solid growth over time. Please call or email us with any questions.
2014’s stock market performance was varied. The S&P 500 was up 13.69%, the DJIA was up 10.04%, and the Russell 2000 was up 4.89%. The Barclays US Aggregate Bond Index was up 5.97% and the MSCI Emerging Markets Index was down -2.19%. The unemployment rate dropped to 5.6% from 6.6% on January 1st. While this is a positive number it is slightly skewed do the fact that the labor participation rate is lower than a year ago. In 2014 GDP had grown by roughly 2%, which is about the average for the last 50 years. While it didn’t seem likely to have interest rates go any lower at the beginning of the year, the 10-year U.S. treasury rate closed at 2.12% down from 3% at the beginning of the year. Arguably the biggest surprise of the year was the drop in oil prices from over $100 per barrel to under $50. While this will negatively affect many energy companies and countries that depend on oil exports, oil prices at this level will be a boost of almost $100 billion to US consumers.
After an impressive performance for the equity markets in 2013, we are now halfway through 2014. The unemployment rate has decreased from 7% to 6.1%, which was better than the Federal Reserve anticipated. However, this rate is deceivingly low due to the labor participation rate falling from 65.8% in 2008 to 63% in 2013. Fixed income yield for the 10 Year US Treasury is down to 2.54% after beginning the year at 3.04%. The major averages are higher, benefiting from better economic data and continued low long term interest rates. As of July 1st, mega cap stocks in the DJIA are up 2.58%, large cap companies in the S&P 500 are up 7% and smaller cap companies in the Russell 2000 are up 3.17%.
2013 was the first full year at Lowell Road Asset Management. After managing money for private investors for the previous 17 years with the last 10 at Raymond James Financial, I felt the time was right to create LRAM. Over time our objective at LRAM is to generate above average returns for our clients by following our logical, repeatable approach to value investing while providing the best customer service possible.