Equity markets have been unusually volatile so far in 2016. Plunging oil prices, slowing growth in China and the uncertainty of Federal Reserve rate increases have all pushed equity prices lower. Markets do not like uncertainty. Therefore, until some of these issues are resolved, we may have additional volatility.
The good news is that with a growing economy it is rare to have an extended protracted decline. Historically, with severe declines such as the 2008 financial crisis or during the dot com bust, the system had excessive leverage. At this time, we do not believe there is excessive debt at either the consumer or the corporate level.
Many fundamentals of our overall economy are strong. Housing sales are at levels not seen in eight years and have yet to reach their long-term average; auto sales hit record highs last year and are expected to stay close to those levels this year; job growth is positive, and we are finally starting to see rising wages. Despite manufacturing and energy businesses contracting, the entire U.S. economy is solid. Globally, a reduction in energy prices has always created an acceleration in global economic growth in the following year.
The equity markets are more attractive, and our active managers are seeing better values with their margin of safety improving. As Warren Buffett eloquently says, “Buy fear and sell greed.”
Volatility is normal yet often unnerving. The best way to weather the storm is to take the long view, stick to your investment plan and remember that this too shall pass. As always, if you have any questions, please do not hesitate to contact us.