Phone: 301-377-9407
Email: Art@ArthurSteinFinancial.com

2016 in Review

Keeping my clients invested and maintaining agreed upon portfolio allocations is an important part of investment management. Many investors react emotionally to market fluctuations, buying when markets are at or near their peaks and then panicking and selling after markets begin declining or even hit bottom.
 
And there were many reasons to panic in 2016:
  • The year opened poorly, with the S&P 500 Index declining 11% from the beginning of the year through mid-February.
  • The June 23 British vote to leave the European Union (Brexit) was supposed to bring a sharp decline in international and probably US stocks.
  • Forecasters said a Donald Trump victory over Hillary Clinton would crash the US stock markets (click here and here).
  • The Fed raised rates on Dec. 14.
 
Investors who didn’t panic and sell benefited from solid growth in 2016 for stock investments. The graph below illustrates this.
 
 
Historically, over long periods of time, value stocks tended to outperform growth stocks and small-cap stocks tended to outperform large-cap stocks. In recent years, growth stocks--particularly on the large-cap side--have posted better results, driven partly by investors' hunt for earnings growth in a sluggish economic recovery.
 
2016 marked a return to the historical norm: Small-cap stocks outperformed their larger-cap counterparts. Small-value was the top-performing category in the Morningstar Style Box for the first time since 2008, gaining 27%.
 
 
Trying to time specific industries remained as difficult as ever. For instance:
  • Energy and basic-materials stocks increased more than 23% in 2016, making them the two best performing sectors. However, they were the two worst performing sectors from 2013-2015.
  • Healthcare was the best-performing sector from 2013-15. It was the only one that posted a loss this year.
  • Dividend-heavy consumer defensive and real estate stocks also posted relatively poor results--although both were still up more than 6% this year--as the Federal Reserve signaled it would raise short-term interest rates.
 
The long-term bond market was volatile in 2016. During the early part of the year, bond prices rose. However, as investors saw a strengthening economy, higher inflation, and rising interest rates, a period of bond sales occurred, which peaked during the last quarter. That caused prices for existing bonds and bond mutual funds to decline.
 
As a result, returns on bond funds ranged from meager to slightly negative. Bloomberg Barclays U.S. Aggregate Bond Index stood at an unremarkable 2%. The Bloomberg Barclays Municipal 10 Yr 8-12 Bond Index declined.
 
International stocks were slightly positive.
 
Being patient and in a well-diversified portfolio was a good way to weather these ups and downs.
 
Notes:
 
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
 
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
 
Keep in mind that:
  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and they should not assume that these generalizations or information apply to them.
  • Investments mentioned may not be suitable for all investors.

Arthur Stein Financial, LLC ("ASF") is a registered investment advisor ("RIA"), located in the State of Maryland. ASF provides investment advisory and related services for clients nationally. ASF will maintain all applicable registration and licenses as required by the various states in which ASF conducts business, as applicable. ASF renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion.

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