from the January newsletter of
Sigma Investment Counselors
After years of double-digit gains, many investors view these past year’s small gains as a disappointment. However, a flat market can be healthy in this type of environment. If a company’s stock price remained flat over the past year, while its revenues and earnings continued to grow, it should be more attractive to investors. While certain sectors like energy and materials struggled through 2015, the overall market was able to bounce back from a summer rout that dragged the S&P 500 down more than 10% from its high reached in May.
The question we always get asked by clients at this time of year is, “What’s next?” While predictions are difficult, we do think that equities remain the asset of choice and are in the middle of a long-term uptrend. Corrections (drops of 10%-20%) like we saw last summer will likely recur. Volatility in general seems to have returned to the markets. Investor psychology is more subdued than at any point in the past few years. Investors continue to worry, however; as the old saying goes, “the market climbs a wall of worry.” This is a healthy sign, as excessive optimism usually does not end well.
The rhetoric surrounding the upcoming elections in the U.S., interest rate risk, geopolitical tension and global growth uncertainties all make for anxious investors. Despite those negatives, the U.S. economy continues to grow modestly, companies have strong balance sheets, consumer confidence is improving, and low energy prices are all positives for investors and the equity markets in general.