2016-Q4 Quarterly Update
January 15, 2017
Dear Mr. and Mrs. Smith,
2016 was a record setting year for investing, both good and bad. The stock market began the year with the worst start on record, losing over 10% by February. Then, the stock market staged the sharpest rally following a decline since 1939 to end the first quarter up about 1%. In the second quarter, the stock market managed a slight gain despite Brexit (Britain voting to leave the European Union), and a fifth straight quarter of declining profits.
We predicted double-digit earnings growth for the second half of 2016 and reiterated our S&P 500 Index forecast of 2016. The stock market rose to record highs in the third quarter as earnings broke their downward trend. The fourth quarter saw the stock market decline before the U.S. Presidential election followed by a furious rally post-election. The S&P 500 Index closed the year at 2238.83 up 9.54% for the year.
Here’s a reviewed of TIA’s performance.
- TIA’s Growth Equity portfolio performance matched other growth stock indices all which lagged the broader market – and all managing only a little over 2% gains for the segment.
- TIA’s Value Portfolio matched the broader market’s return.
- TIA’s Income Portfolio significantly outperformed the stock market.
- Our covered call program continued to generate additional income when used in conjunction with any of our equity portfolios.
- The Preferred Income Portfolio (PIP) market its eighth year of delivering superior income and limited volatility although the post-election rise in interest rates caused security values to dip, leaving us in the 3% to 5% range of total returns (gross of fees). We believe this price dip is a temporary over-reaction which will resolve itself soon.
The U.S. Presidential election outcome was the “News” that caused a rise in both stock prices and interest rates. At this time, it’s just “noise” as nothing has changed except market sentiment. While it appears that change may finally happen in Washington with lower taxes and less regulation that would be welcomed by the business community, it is too early to assess the effect on stock and bond prices. Worldwide demographics, excess production capacity, and a continuing lack of inflation remain as headwinds. TIA still believes interest rates will remain lower longer and the stock market higher longer than in previous cycles, which means moderate rises in interest rates and slowly higher grinding stock prices over the next two to five years, not all at once. At TIA, we remain committed to doing the research that separates the “news” from the “noise” coming out of Washington to help you achieve your investing goals.