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Riding the Wave of Investor Sentiment

Periodically, we look to provide insight from portfolio managers on the market and management of their portfolios.  Following is a conversation about the factors impacting the markets with Vi Chan, CFA.

JB: So far this year, the stock market has been volatile near­ly every day; what are your thoughts on the positive and negative swings in the market?

 

VC: Markets have been overly dramatic this year as investors react to headline news. In early January, concerns about a slowdown in China and slumping crude oil prices worried investors. Major stock indices recorded their worst ever start to a year; with losses of 10% or more, they quickly entered correction territory. Investors appeared content to “sell-first, ask-questions-later” as sentiment turned excessively nega­tive, culminating at one point with fears of an imminent recession. In a rush for safety, investors favored government bonds and gold; the yield on the benchmark 10-year U.S. Treasury Note fell to a 3½-year low while gold prices surged. Then, following the worst January results for stocks since 2009, the mood began to shift in mid-February. People started to realize that maybe things weren’t as dire as they thought; encourag­ing economic data and stabilizing oil prices helped reverse the outlook. Fears of a recession quickly faded and the markets rallied to recoup most of the earlier losses.

I think the market action so far this year has been fascinating; it’s a reminder of the importance of having a long-term perspective.
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2015: Year In Review – The Long Road to Liftoff

During the first half of 2015, the stock market was relatively calm with the indices remaining within a historically narrow range. In the third quarter, mar­kets sold off and volatility increased in response to a series of events including Greek bailout negotia­tions, concerns of an economic slowdown in China, and the Federal Reserve’s decision in September to delay raising interest rates; from peak to trough, the S&P 500® Index declined 12.0%, the Russell Midcap® Index fell 12.4%, and the Russell 2000® Index of small companies tumbled 16.0%. In the fourth quarter, though, global economic concerns eased. And, on the strength of solid employment data, the Fed an­nounced the first interest rate increase since 2006. The move, along with the Fed’s comments empha­sizing a gradual pace of future rate hikes, prompted a market rally; even so, the markets finished the year slightly lower.
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