Client Perspective: Making Sense of Recent Market Moves

In light of continued “turmoil” in the US stock market (this was written on December 21, 2018), we felt it might be time to weigh in and provide some talking points to support your client conversations. It will not be long before we provide our quarterly commentary, which will dive deeper into some of these items, but in the meantime here is a synopsis.

The Fed continues to raise interest rates given a persistently upbeat economic outlook. While there was certainly a case for not hiking rates (e.g. inflation is mild) there was also a case to hike as they did (e.g. labor market is still strong). Clearly the market sees it differently from the Fed. As a reminder, the Fed’s goal is to provide for stable prices and healthy employment, not to make the stock market go up or down.

Additional uncertainty around trade tensions with China, a potential government shutdown, Brexit, and the military withdrawal from the Middle East has also weighed on investors’ confidence. Taken in concert, it’s difficult to imagine the markets wouldn’t feel at least a little gloomy. Markets don’t like uncertainty.

Anecdotally, we believe that loss-harvesting may have also contributed to December’s decline.

All that said, we have to remember that the Dow Jones and S&P do not fully reflect our recommended portfolios. It can be little consolation, but relative to the -16% for the US market (Russell 3000) so far in the 4^th quarter, a diversified portfolio will have weathered the storm better than the headlines. Over the same period:

MSCI EAFE is down 12.9%
Emerging Markets are off 8.2%
Bonds are up 1.5%

Also, to put this into historical perspective, the following chart shows that intra-year declines in the S&P 500 (the red dots) have occurred EVERY YEAR since 1980, averaging -13.8% and ranging from -3% to -49%. Despite the regularity of market sell-offs, the index finished the year positive 76% of the time.

This is not an attempt to paint a rosy picture since there is no way to know where we go from here. But we have to make sure we accept the probability, or certainty, of this type of environment from time to time. As long as we are positioned appropriately in advance, staying the course is the recommended course of action, however mentally and emotionally challenging it can be. Having these conversations with clients, in good times and bad, helps set them up for long-term success.

If you have any questions please feel free to call us at (360) 301-7579 or email us support@xyinvestmentsolutions.com. Thanks!

The commentary contained herein is intended to be general and educational in nature, and is not intended to be used as the primary basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Nothing contained herein should be considered legal, tax, accounting, investment, financial, or other professional advice, and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. Investors should consult with a qualified professional advisor before taking any action based on this commentary.

Investing in mutual funds, exchange-traded funds (“ETFs”), and other equity and debt securities involve risks, including loss of principal. Any performance data quoted represents past performance. Past performance does not guarantee future results and principal value will fluctuate so that an investor’s investments, when redeemed, may be worth more or less than their original cost. Performance data quoted does not account for any advisory fees imposed by XYIS or any independent and unaffiliated financial planners, or other transaction charges, expenses, taxes, or other fees and costs. Performance of an investor’s actual portfolio will differ from any performance presented.

Investing in foreign securities may involve certain additional risk, including exchange rate fluctuations, less liquidity, greater volatility and less regulation. Small company stocks may be subject to a higher degree of market risk than the securities of more established companies because they tend to be more volatile and less liquid. Bonds are subject to risks, including interest rate risk which can decrease the value of a bond as interest rates rise. REIT investments are subject to changes in economic conditions and real estate values, and credit and interest rate risks.

Investors cannot invest directly in an index. Indexes are unmanaged and reflect reinvested dividends and/or distributions, but do not reflect sales charges, commissions, expenses or taxes.

An investor should consider a portfolio’s investment objectives, risks, charges and expenses carefully before investing. The underlying funds’ prospectus contain this and other important information. Please read any applicable prospectus carefully before investing.

About XY Investment Solutions, LLC

XY Investment Solutions, LLC (“XYIS”), through its partnership with East Bay Financial Services, LLC (“East Bay”), builds investment models through a technology solution, and supports financial planners with investment strategies based on research, experience, and sound rationale. XYIS primarily allocates client assets among various mutual funds and/or ETFs. XYIS may also allocate client assets in individual debt and equity securities, options and independent investment managers. XYIS's services are based on long-term investment strategies incorporating the principles of Modern Portfolio Theory. XYIS manages client investments in portfolios on a discretionary basis.

Email support@xyinvestmentsolutions.com with specific questions about models you may be using or considering in your practice.