Kentucky wealth management professionals expect the turbulence with which 2016 began to continue in varying degrees for the rest of the year. While they largely agree that the U.S. economy should see continued low to moderate growth this year, there is no uniformity in what strategy this might suggest. The volatility in equity markets likely offers opportunity to the investor who understands that quality stocks will be available during market dips. A changing world economy, especially China’s shift from manufacturing to consumer spending as its prime driver, will provide the ongoing uncertainty to keep markets riding the waves. One suggestion is that investors need to keep closer watch on their portfolio and rebalance more often to stay on course for specific personal goals.
Todd Parker Lowe, President, Parthenon LLC:
“Following a year in which domestic markets were flat, emerging markets suffered significant declines and global markets in general were lackluster to poor, the role of the investment manager is as crucial as any time in recent memory. Many investors have fatigue from recently increased levels of volatility across markets with seemingly nowhere to hide from daily moves, up and down, frequently in excess of 1 percent. After some years of underperformance, alternative investments, such as hedge funds, may have an opportunity to perform relatively well. Following the rally for domestic stocks since the 2008 financial crisis, it appears for domestic investors to be a year of the ‘stock picker’ rather than expecting all markets to rise smoothly.”
James R. Allen, Chairman and CEO, Hilliard Lyons:
“An uneven global recovery is likely to keep equity markets on edge and volatility high as 2016 unfolds. Given the unsettling and confusing combination of market factors, investors need to be patient and focused on achieving their longer-term goals. As always, an emphasis on quality and income-producing equities should help to mitigate risk. The early 2016 equity market decline should be viewed as a buying opportunity. The Fed is likely on hold with regard to additional rate hikes during 2016. With the 10-year Treasury yield below 1.75 percent, bonds are not likely to provide much price appreciation potential.”
Andy D. Waters, President/CEO, Community Trust and Investment Co.:
“We believe the U.S. economy will continue with slow to moderate economic growth and in the end, providing a strong backdrop for owning U.S. equities. However, the year will have challenges as higher volatility and lower returns will persist throughout 2016. Global markets need time to digest the changing landscape in interest rates, Chinese GDP and the current oversupply of oil. The Fed will continue to raise interest rates but at a more gradual pace than previously conveyed. As an active manager of individual securities, CTIC sees these periods of higher volatility as opportunities to pick up high-quality assets at inexpensive valuations.”
Ernest Sampson, CEO, Private Client Services:
“The market headwinds have been turbulent for some time. The market is down year-to-date in a classic tug of war just before a bull or bear market breakout. The convergence of market influences is a perfect storm for the market. Domestically speaking we have a (one for the ages) presidential election, historical low interest rates and a Federal Reserve changing direction, wage stagnation and social issues abounding. Internationally, we have ISIS and Middle East turmoil, massive migration from war-torn areas to European countries, Chinese economic turmoil, and Russia, North Korea and Iranian issues. Without a significant change in the variables listed above, it is difficult to anticipate anything but a down year for the market.”
Jim Elliott, Senior Vice President, Director of Wealth Management, Kentucky Bank Wealth Management:
“We project continued modest U.S. economy growth for 2016 and slowing growth globally. Labor markets will continue to improve, although not with higher paying jobs. The Federal Reserve would like to normalize interest rates, but we foresee a next increase delayed until later this year, and fewer increases this year than were expected last fall. Investment markets have gotten off to an ‘interesting’ start in 2016. Falling oil prices, a slowing global economy, slower growth in China and an unusual presidential primary situation all contribute to a high level of uncertainty that markets don’t like. In turbulent times, we give clients the same advice as always: Sit with your financial advisor at least annually, determine your needs, aspirations, time horizon and risk tolerance, and develop the appropriate asset allocation. Rebalance to that allocation regularly. This will carry you through all situations.”
David Harris Jr., Senior Partner, MCF Advisors:
“We believe 2016 will be marked ‘Volatility Returns.’ Volatility returns to more average levels, which unfortunately means an increase from the historically low volatility we enjoyed the past three years. We expect the Federal Reserve to gradually increase/normalize interest rates based upon stabilized employment and growing inflation. Markets are in a transitioning period – from no inflation to low inflation to moderate inflation and on to average inflation. This creates significant asset re-pricing activity, as each future dollar of cash flow gets discounted by each step-up in inflation, thereby creating valuation headwinds on almost all asset classes with the exception of real assets. We expect it to continue for the next few years as asset classes adjust to the changing economic environment.”
Travis K. Musgrave, Managing Director, Musgrave & Associates, Merrill Lynch, Pierce, Fenner & Smith Inc.:
“We believe 2016 will represent a year of global transition. Many economies both local and around the world will wrestle with the transition from a manufacturing-based economy to a consumer-driven economy. This transition will most likely create higher levels of global volatility around currencies, interest rates and equities. Stubbornly low interest rates and lower energy prices on top of an expanding and growing economy will set the stage for many terrific opportunities. There will be clear winners and losers during this transition, making security selection increasingly important. Investments with a focus on quality income and long-term growth will be rewarded.”
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