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What You Can Learn in an Airport

Chris Cassidy, Portfolio Manager
January 2016

This past January, I was stranded in one of my least favorite places, JFK Airport. Wanting a distraction from the dreaded monitor teasing me about yet another delay, I opted for a highly caloric snack and a copy of Money Magazine Investorís Guide 2015. The magazine contained an article entitled “Sizing Up Tech’s Titans” in which they rated Apple a buy, Google a hold and Amazon a sell for 2015.

Articles forecasting how financial markets will improve, and which stocks to buy and sell, for the upcoming year are more ubiquitous than holiday fruit cakes. The problem is that year-to-year movements in markets and stocks are very difficult to predict. In 1928 the S&P 500 gained over 43%. In 1931 the S&P 500 fell more than 43%. In 2008 the S&P 500 fell over 37%, but in 2013 the S&P 500 gained more than 32%. It is hard to imagine that company fundamentals changed so much in just a few short years to war-rant such dramatic swings, but markets are fickle in the short-term.

As I write this, the S&P 500 is up just 0.25% for i2015. For the year ahead, most financial analysts predict the flattish trend in equity returns to continue. Goldman Sachs believes that the S&P 500 will ìtread waterî and finish the year just 2% above its current level. Similarly, Credit Suisse expects the S&P 500 to finish just 4% above current levels by year-end. Morgan Stanley issued a note claiming that investors should pre-pare for an era of below average returns. On the fixed income side, many analysts fear that a rising interest rate environment could pressure bond prices in 2016. In December, the Federal Open Market Committee raised the Fed-funds rate for the first time since June 2006. If the Fed raises rates too quickly in 2016 it could cause volatility in both fixed income and equity markets.

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