Wealth Management Blog

Posts tagged Markets

Turbulence in the Markets

By JJ Burns

February 10, 2018

“Ladies and gentlemen this is your Captain speaking. It appears we’ve hit a bit of turbulence.  For your safety and for those around you, please stay calm, seated and keep your seatbelts securely fastened”.

If you fly enough, you have undoubtedly heard an airline Captain say these words.  Many passengers would find it more comforting to hear the Captain say the following:  “This turbulence is normal and is to be expected. We never know when it will hit or how long it will last, yet it’s important for everyone to know that we built this into our flight plan before takeoff.  Please know that we are making the necessary adjustments to our flight plan which are based on the fundamental principles of flying.  I understand this can be a bit frightening, however it is important that everyone remain seated and calm. While I also know that it feels like this time it’s different, it’s not. This is normal and we will pass safely through it.  And as a friendly reminder, we’ve experienced this turbulence many times before during our flight and we’ve always made it through okay.”

The same advice can be given about the recent events in the financial markets.  Turbulence must be expected and investing is never a smooth ride.

The volatility we are experiencing this week is normal. In fact, since the beginning of this prolonged bull market which began in 2009, there have been 9 times that we have experienced this type of volatility.  The three most recent pull backs are highlighted below:

  • January 2016 – Over the course of three weeks the S&P Index was down 11 percent and by April of that year all the January losses were gone.
  • August 2015 – A 1,000-point drop in the DJIA on August 24th. The S&P lost 11 percent over the course of six sessions only to recover the losses in the next two months.
  • October 2014 – There was a 460-point rout in the Dow average on Oct. 15, widening a selloff that started a week earlier to 5 percent. The rout faded as quickly, and the Dow recouped all the losses in the next two weeks.

Even for the most disciplined of investors, this week’s market volatility is bound to strike up some negative emotions. This is completely normal. The key is to not act on those emotions or make irrational decisions.

What is causing these market moves?

  1. U.S. equities have had an unprecedented run and we were overdue for a correction.  Since the election in 2016, the S&P 500 gained 32% peaking on January 25th without any substantive pullback.  In the month of January alone, the S & P 500 ran up 7.4% to a new high before experiencing the current market turbulence.  These upward moves, while pleasant to investors, are unsustainable without consolidation.  Even though the economy looks promising going forward, corporate profits are rising, and tax cuts should spur additional growth, the financial markets simply got ahead of themselves.  The economic fundamentals are still intact and we see no signs of a slowdown on the horizon.
  2. Investors had become complacent.   As the equity markets reached new highs, many more investors piled in pushing the markets up further.  We saw risk parameters of investors change, eschewing the safety of bonds for big gains in equities.  These investors lost sight of the fact that stocks could be volatile and as quickly as they piled in, they are retreating.   Additionally, the Bitcoin phenomenon has taken on a life of its own.  We believe this is the epitome of speculation.  Speculators piled into Bitcoin driving it up to over $19,000 looking for quick gains.  Most people who invested in this cryptocurrency did not understand the fundamentals, they did it to make a quick buck.  As of this writing Bitcoin is valued at $8,300.  The risk of stock investing was not enough for these cryptocurrency speculators, they wanted more risk and got burned.  We do not invest in cryptocurrencies at JJBCO but we use investor sentiment in it as a gauge of fear and greed in the overall markets.
  3. Interest rates have been rising and this has a tendency to scare equity investors.  Since September of 2017, the yield on the 10 year US Treasury Bond has increased from 2.06% to 2.85%.  Why would this be a concern?  Markets get nervous when yields rise because of competition for investment dollars.   If an investor has an opportunity to lock in guaranteed income at higher rates they may be less likely to take the risk of investing in stocks.  We believe the orderly increase in bond yields is a good thing.  It shows that the economy is strengthening and it will allow our clients who need retirement income to meet their needs without subjecting themselves to undue equity risk.

At the end of the day this market turbulence we are experiencing is not unprecendeted….it is normal.  Yes, it is unpleasant to go through and it will shake some weaker hands out of the market.  The key is to have a target allocation and a plan.  Many investors just react with emotion because they do not know what they are investing in or the goal they are investing for.   We build portfolios on sound fundamental principles of investing which include:

  • Asset Allocation – The long term mix in your portfolio of stocks, bonds and cash.
  • Diversification – Within each asset class holding a globally diversified portfolio built upon the dimensions of returns.
  • Rebalancing – The simultaneous buying and selling of assets to maintain your target allocation and manage the risk inside your portfolio.

What happened in the markets over the last two weeks is normal.  There is no need to panic.  The fundamentals of the economy have not changed.  If you have any questions or wish to speak to us directly please feel free to contact us.

On behalf of your NY based flight crew, this is your Captain signing off.

Financial Lessons from Charles Dickens’ “A Christmas Carol”

By JJ Burns

December 24, 2015

Famous miser Ebenezer Scrooge was introduced to readers in Dickens’ 1834 classic tale of redemption that takes place on Christmas Eve.  Scrooge has lived a life focused on growing his financial wealth with little regard for life outside his counting house.  In one remarkable evening, on a Christmas Eve seven years after the death of his partner Jacob Marley, he is visited by Marley’s Ghost and three other Spirits.  Their visits offer Scrooge an opportunity to objectively look at himself and others from an abstract point of view, and revisit his past actions and beliefs.  The now-famous result is well known, but we might ask, how does this apply to investors?

Seven years ago this very day, in the throes of the Financial Crisis, here’s where the markets sat compared to where they are today:

The global economy in 2008 was mired in slumping markets, broken banking systems, panic selling in every market segment and plagued with a lack of financial controls.  More pain and dislocation in the job and securities markets were waiting for investors in 2009 and beyond.  It was a very difficult period to navigate, from both an emotional and analytical perspective.

Now let’s fast forward to 2015.  Many investors are disappointed by market returns this year.  There are no global tailwinds at play (other than low oil prices), and different regions and countries are executing different monetary and fiscal policies.  We are truly in a state of global flux.  But we also think that as U.S. investors take stock of the year, there is certainly more to be thankful for in 2015 than during the Crisis.  We don’t mean to imply that everything related to the U.S. markets and economy has been rosy during the recovery, but the U.S. is certainly in a better place than many other areas of the world.  We can also confidently predict that we don’t know what will happen next year or the year after, but at this writing, we expect continued modest recovery in global growth and in modest returns for stocks and bonds.

We can also use Dickens’ three ‘spirits’ to help set our behavior and our expectations going forward:


  • DON’T focus on GREED (at any price) and FEAR (panic selling) due to lack of planning
  • DO focus on long-term results that are right for you,  NOT the short term noise


  • DON’T tinker and chase returns based on “feelings” and avoid short term opportunism
  • DO be aware and rebalance to your correct allocation as your plan calls for


  • DON’T ignore the lessons of the past and what the real data says
  • DO focus on what can be controlled – allocations, investments and EMOTIONS

Scrooge’s transformation occurred on many levels; most of us have a lot to be thankful for, too, and we hope that Dickens’ message of charity and forbearance resonates at this time of year.  

We offer best wishes for a peaceful and grateful holiday, and a Happy New Year!

Does China Matter?

By JJ Burns

September 16, 2015

World stock prices have been volatile lately, and China’s crashing stock market has been in the front seat of the roller coaster. Many investors are worried that China’s economy is slowing down significantly faster than reported, and that a hard landing in the world’s second-largest economy will pull the global economy into recession with it. 

For years, China has been the main economic-growth engine for many developed and emerging markets around the world. Latin America, most of Asia, parts of Africa and beyond have supplied the raw materials needed to fuel the economic boom in China. Mega-cap multi-national companies from developed economies have also prospered by tapping into China’s industrial revolution. Despite China’s impressive economic growth over the years and its impact on countries around the world, investing in China has been unconventional and guarded.

With the support of the central government, local investors swiftly bid the market up this year.  The Shanghai market was up nearly 60% during the first six months of 2015 alone. Yet, the explosive growth had almost no impact on U.S. stocks. The S&P 500 traded sideways during the period. Moreover, when the Shanghai market tanked in July, U.S. stocks continued to be flat.  The chart below is a terrific pictorial on what a classic bubble looks like; happily, it didn’t involve U.S. stocks.

Source: CNNMoney, For Informational Purposes Only

U.S. stocks didn’t react to China’s news and markets until recently.  We believe the recent correlation to China’s stock market is temporary, and that U.S. investors have become more sensitive to other risks as we approach a key Federal Reserve meeting on interest rates. The Fed has indicated that it plans to raise rates at some point this year, and the September meeting has been targeted by many analysts as the date of the first increase in over a decade.

The potential of raising interest rates in the U.S., while China is retrenching and pulling many emerging markets down with it, has become a reason to take profits for many investors. However, the recent volatility has also spurred a wave of new money entering the markets. U.S. stocks have avoided a correction (a drop of at least 10%) since 2011. A four-year run without a correction is unusual for the U.S., and there seems to be pent up demand on the sidelines that has been waiting for entry points.

The Chinese Transition Redux

The points below are a few basic elements to summarize the ongoing dialogue we will see about China over the coming year.  The media will likely focus on these issues:

  • Chinese economy moving from export based economy to a balanced economy – “a consumer driven economy.”
  • The transitional changes will be challenging and investments in China will be volatile.
  • China’s attempts to stabilize markets have not been as effective as hoped.
  • Reduced appetite for commodities and thus lower worldwide inflation is likely.

The U.S. Federal Reserve may be on hold for a while longer.  Low inflation is good, but deflation is not. If the Fed raises rates in September, it could be taking a big risk of tipping prices into a deflationary zone and strengthening the U.S. dollar. If the Fed leaves interest rates unchanged, Fed members will have more time to analyze data and let the economy further develop some employment and price trends.

We know volatility can be unsettling; regardless, our long-term outlook is still positive. We believe investors who have sufficient diversification and flexibility in their portfolios should be able to successfully navigate these choppy waters. To see if your portfolio is properly balanced based on your long-term goals, contact our team to assess your needs. Now is the time to review your situation and make adjustments accordingly to help mitigate your downside risks.

Ever Wonder What “Really” Happens in the Markets?

By JJ Burns

February 10, 2015

The first 5 weeks of the New Year have been pretty volatile for most markets; clearly, last year’s news has brought volatility back.  Many strategists have been “pounding the table” on stocks and declaring that the Large Cap US Equity Market will continue to lead the way in 2015.  Although possible, we believe that broad diversification is still the key to long-term success.  This philosophy means we will continue to have exposure to small cap, mid cap and international securities, even though they trailed US Large Cap equities last year.  We just received an interesting piece from Louis Navellier of Navellier & Associates.  A long-time market analyst and portfolio manager, he notes:

The biggest news last week was crude oil rallying 19% from its lows in just four days, which sparked a big rally in some beaten-down energy stocks and other stocks that have been beaten down by a strong U.S. dollar. By Friday, most major market indexes had made up for all of January's declines. But here is the real conundrum the stock market now faces…of the 20 stocks that account for approximately 30% of the S&P 500's total value, too many — like Caterpillar, Chevron, Coca-Cola, DuPont, ExxonMobil, IBM, McDonalds, Microsoft, General Electric, Goldman Sachs, JPMorgan & Co, Pfizer, Procter & Gamble, and even Google have all missed analyst estimates and/or issued cautious guidance below analyst estimates… essentially what is happening is that a strong U.S. dollar is squelching sales of large multinational companies and squeezing their underlying earnings. A massive flight to more domestic stocks with real sales and earnings growth is now underway, so I expect the stock market will get increasingly narrow in the upcoming weeks.

Since the brief U.S. market correction last fall, investors have had to adjust to new information and possibly reposition portfolios with respect to:

  1. The increasing strength of the U.S. dollar
  2. A precipitous decline in crude-oil prices and gasoline, followed by a brief but sharp rally in 2015
  3. Changes in European Central Bank policy that are expected to lead to expansionary moves similar to those taken by the U.S. Federal Reserve Open Market Committee following the financial crisis.
  4. A repricing of some commodities that react to changes in inflation expectations and the dollar such as gold.

Navellier also noted that the previous time a ‘leadership change’ occurred in the U.S. markets was a mega-cap retreat in the early 2000s following the Tech Bubble.  He goes on to say:

The S&P 500 has gotten too top-heavy once again…the bottom line is that we are now unquestionably in an increasingly narrow stock picking market, and the "sweet spot" in the stock market is moving down the capitalization ladder to the mid-capitalization area.

Time will tell if this analysis is correct.  However, we agree with the thesis, and think this is a good time for rethinking exposure to international stocks as well, which might expect a boost in revenues and favorable exchange rates against the U.S. dollar.   The best news, however, is that many of our clients are in portfolios that are diversified across the U.S. market-cap spectrum (including mid- and small-cap stocks), and have international exposure as well.  We appreciate that 2014 was a trying year for many investors, but we’re pleased that we already have many of the security exposures that might prevail going forward.  For more on the markets over the last two years and how some investors fared, please see our 2014 year-end review.