The SD-PFS*Ticker
Vol 8, Issue 1
March 2017





A birthday worth celebrating?

As the days get brighter and longer with the onset of spring, we are reminded of a spring event not so long ago. Nancy Skeans' article below reminisces about the start of this bull market, and discusses how it might affect current and future market activity.

We have streamlined our newsletter format to make it easier for those of you reading on a mobile device. We hope you find something useful in the information that follows. As always, please feel free to call us with any questions or comments at 412-697-5331

Happy Birthday, Mr. Bull!
Is it time to celebrate, or do we start to worry?
... Nancy Skeans 

This March marked the 8th birthday of the current bull market. According to one famous investor, John Templeton, "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria." If you care to think back, where were you on March 6, 2009? That was the day that the S&P 500 hit an intra-day low of 666.79 and closed that day at 683.38. Some argue that March 9th  is really this bull's birthdate because the S&P actually closed at a lower point that day at 676.53. But why argue over 10 points and a weekend? Whether it was on Friday or on Monday, I bet you still remember where you were during those scary few days when the U.S. market reached its maximum point of pessimism. For me, the memory of this event is unforgettable. But the purpose of this article is not to make you gloomy or feel dreadful about the financial markets; it is to reflect on where the U.S. markets have come from and where they might be headed.
 
So what exactly is a bull market, and why should investors care? According to Investopedia, bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue. But generally, the terms bull and bear just describe a trend. That trend does not have to be a straight line up or a straight line down. If we look at the S&P 500, it currently sits at approximately 2,275. The trend since March 2009 has been most certainly up, but there have been many setbacks along the way. The first one that comes to mind is the Japanese tsunami and nuclear crisis that occurred in March of 2011. The following year, in the summer of 2012, the European debt crisis reared its ugly head.  Who can forget the PIGS (an acronym used to refer to the economies of the southern European countries of Portugal, Italy, Greece, and Spain). In 2013, there was the Taper Tantrum. Where does the media come up with all of these clever names? In 2015, the U.S. equity markets struggled all year with the S&P 500 gaining only 1%, including reinvestment of its dividend. In 2016, the market went backwards more than once. First there was the collapse of oil prices in the early part of 2016, but the market recovered only to suffer a second selloff when Brexit hit mid-year. After all of the excitement, including the presidential election, the S&P 500 ended up almost 12%.
 
What will cause the next selloff? And will it be a big enough event to end the long-running bull in U.S. equities? This is a question we ask ourselves often, and I wish we knew the exact answer.  We do have some thoughts to share with you though. History tells us that bull markets do not die of old age. This bull market has been one of the longer ones in U.S. market history, but not the longest. The recovery from the global financial crisis has been painfully slow as growth in the U.S. and around the world has dragged. Because growth has been so slow, any sign of weakness here in the U.S. or abroad has precipitated a market retreat, but to date, they have not upset the long-term trend. All of the pullbacks that were mentioned above resulted from the repricing of equities due to the fear of a possible recession, except perhaps the Taper Tantrum. One thing about this bull market, and perhaps why it has lasted so long, is that it has yet to be based upon heady optimism. Until recently, market optimists have been very hard to find. The experience of the great recession left most investors waiting for the next shoe to drop, so at any sign of weakness, the investors were looking for an exit. In fact, many investors never came back to the party at all and sat the entire recovery out in cash.
 
So is it time to celebrate or is it time to worry? We will take an equal measure of both. Because growth has been very slow, the economies here and around the globe are not over-heating. This could mean, barring an unexpected event, the bull market may plod along for another year or more. Recently, I listened to one of my favorite market analysts, Dr. David Kelly, the Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Funds. He pointed out that during a bear market, investors need to find their courage because during bear markets the prices of all equities fall, many to a ridiculously low level (think March 2009). In markets like we see today, Dr. Kelly said that investors need to find their brains. Dr. Kelly is not telling us that the bull market has run its course. Nor is he telling investors that a recession is hiding in the closet just waiting to jump out and ruin the party. In our opinion, Dr. Kelly is telling investors that the easy returns of the S&P 500 and the bond market are probably behind us, so you don't need your courage yet, but you need to be smart about how you are investing. 
 
Here are some of the ways we believe you can be smart about your investments:
  1. Review your asset allocation. Have you been taking more risk than usual? There are several ways to look at risk, but one of the easiest is to check your gut. The second and smarter way to review risk is to understand your cash needs. Do you know how much cash you need from your portfolio? If you are within 5 years of retirement, you should still be answering this question.
  2.  Diversify your assets.This means that you should own equities of different sizes, different sectors and different countries. When it comes to bonds, diversity is also important. Last, but not least, own assets that may provide a different return stream, or are less correlated to your equity holdings.
  3. Remember, it is normal for markets to fluctuate in price. Severe market downturns are generally the byproduct of a recession. Why? In a recession, the earnings that companies make are falling. When earnings fall, investors demand to pay less for the lower earnings stream. It is not easy to predict a recession, but many are the fallout of an overheated economy coming back to earth. In some cases, a recession is caused by an unpredictable event. For example, Japan went into a recession after the 2011 tsunami, and although the global economy slowed, it ultimately regained its footing without a global recession taking hold.
  4. Lastly, don't panic. If your investments get caught in a recession, and they will, use your courage. The diversification in your portfolio can help weather the storm. For example, historically high-quality bonds tend to provide some safety. One thing that you will notice is that when the storm starts to pass (think of the second half of 2009 and 2010), the prospect of company earnings starts to recover, and so do equity prices.

The good news, and cause for some celebration, is that we don't believe the U.S. is on the verge of a recession. In fact, U.S. growth is still plodding along as it has for much of the recovery from the great recession. Global growth, too, looks okay not only in the developed world, but also in some of the largest emerging market economies like China and India. It is possible this bull market may plod along into the history books, but it is likely that the easy returns are behind us. 
 
In closing, this bull's birthday should remind all of us of the importance of setting long-term goals, monitoring those goals, and when the going gets tough, remembering that the next bull market is always around the corner. If you are interested in more perspective on the markets, please read the thoughts from Liz Ann Sonders, Chief Investment Strategist at Charles Schwab and Robert Doll, Chief Equity Strategist at Nuveen Asset Management, LLC.

Cyber Security Tip

Social Engineering is a deceptive request for information. It may come via email, phone or even U.S. mail. If a seemingly legitimate contact, vendor, or even advisor asks for confidential information unsolicited, just say no. Take a minute to verify the identity of the request. If it is a credit card, use the phone number on your credit card to call and verify. Never attempt to verify using the information from the suspicious contact.  

What We're Reading
The Nightingale by Kristin Hannah
Review by: Karen Werley

I'm the least likely person to read a "period piece" novel, but I loved this book! Set primarily in war-torn Paris in the 1940s, the book is so well written, with complex characters and detailed descriptions of the sights and sounds of the times.You'll race to the end to find out which of the characters has been narrating the story in present day.

The Schneider Downs Wealth Management Team

Nancy, Don, Theresa, Julie Ann, Vicky, Karen, Beth, Nick, David, Derek, Jason and Amber