Asset Class Performance Over the Last Twelve Months:
The portfolios performed well over the last twelve months ending June 30th. Stocks continued their upward rise, bonds held their values, and cash interest rates moved higher over the last year.
- Interest rates on short-term cash/money market assets rose over the last year, reflecting the Fed rate increases. The 4-week T-Bill rate increased to 0.82% at the end of the quarter, up from 0.25% a year earlier. Interest rates on savings accounts remain at historically low yields.
- Short-term bonds turned in slightly positive returns for the year, while longer-term bonds declined reflecting rising interest rates.
- Foreign bonds posted mostly flat performance over the last twelve months.
STOCKS (see chart below):
- Most equity funds turned in positive results over the last year. Technology was the clear winner with a 33.3% return. The losers were Energy and Precious Metals reflecting declining commodity prices.
- Large-Cap Domestic stocks climbed 17.4% over the last year, and were up 9.4% year-to-date.International equities generally did better than U.S. equities over the last 12 months due in part to a declining Dollar and their improving economies.
- Oil prices have declined $8.43 per barrel from December 2016. Energy stocks are in correction territory with an approximate decline of 15% from the December 2016 highs.
12-24 Month Outlook: :
- We expect improving global GDP growth. The IMF (International Monetary Fund) is forecasting 3.5% global growth for 2017, although the advanced economies are forecast at only around 2.0% growth for the next couple of years.
- The Fed has implemented a program to gradually reduce their balance sheet. This will cause rates to slowly rise into the foreseeable future.
- We expect Congress to move forward on legislation to cut corporate income taxes and bring them more in line with the global economy. There may be further tax policy changes to create a simpler tax code.
- Unemployment is now at 4.4% domestically, and has been improving globally in the advanced economies.
Investment Strategy Moving Forward:
- CASH – The Fed will continue to raise rates for the near-term albeit slowly. We believe cash will continue to pay low returns, and as such, our cash allocations will remain low.
- BONDS – With the Fed raising rates, the risk in longer term bonds is much higher. As such, we are keeping duration’s short on our bond holdings. International bonds should do well as the central banks are reticent to raise rates in their economies, even as the global economies continue to improve.
- STOCKS – Looking forward, equities, both domestic and international, have the best growth potential.
- Domestic Large-Cap stocks should benefit most from U.S. GDP growth, and they remain our largest Asset Class holding in the portfolios.
- European stocks are now more attractive as their economies are improving and the valuations are cheaper than the U.S.
- We are encouraged by Japan’s improving earnings growth for the near-term.
- Asian stocks, specifically China, should do well as growth continues to improve while valuations seem more reasonable.
- Energy stocks have suffered this year as a reflection of the decline in oil prices. As global GDP growth improves, the demand for energy should increase, making oil stocks more attractive. We believe this may take some time to evolve.
With all the above data, we see many positives worldwide. Continued growth with lower oil prices should bode well for the stock markets globally. There is little chance of an economic recession occurring, and thus, we continue to maintain a bullish stance moving forward.
Please let us know if you have any questions on the overall strategy and holdings in your personal portfolio. We are always happy to chat about your individual financial situation. As always, we greatly appreciate the confidence you have shown in our services. Thank you for your business!
Bijan Golkar, CFP®