market perspective march 2016

Slides of the Month – March 2016

Experience Insight Impact

biegelwaller.com

Overview: As we have discussed many times in the past, we believe corporateearnings are an essential tool in determining long-term investment strategies.With Q4 2015 earnings season nearly complete, we analyze the key trendsand look forward to what may lie ahead in 2016.

• With earnings season nearly complete, the results for Q4 2015 appear to be poor, with negative sales growth of 4.3% and negative earnings growth of 8.2%.

• Of the S&P’s 10 sectors, only 3 showed positive earnings growth and only 4 showed positive sales growth.


An Earnings Update

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What has Caused the Decline…

• A significant driver of the earnings’ decline has been the precipitous fall of commodity prices and the detrimental impact on commodity-related companies.

• The chart on the right shows 1-year trailing performance of the major commodity markets. As you can see, WTI crude oil has fallen 32% and virtually every other commodity is substantially negative.

• Energy, Materials, and other related companies, which sell a variety of commodities, have been forced to slash earnings.

Experience Insight Impact 3

The True Impact of Low Oil Prices

• Although the producers of oil have been hurt, consumers have benefited.

• Dramatic savings in the hundreds of billions of dollars domestically, and possibly intothe trillions in savings for consumers of energy globally, should help put more moneyinto the pockets of energy users, potentially stimulating demand.

• However, for energy producers there may be bankruptcies and/or prolonged periodsof lack of profitability and growth. This has a ripple affect on the financial sector withconcerns about energy loans, and on regions of the world where energy is critical tomaintaining budgetary balance, such as Russia and the Middle East. The domesticfracking industry has been hit hard by low oil prices with many related stocks andbonds suffering dramatic decline.

Longer term, low energy is positive for much of the globe. Gettingpast the near term volatility, and the negative effects mentioned above, hasadded to uncertainty and has been more challenging than many anticipated.


Strong Dollar Hurting Corporate Results

• Currency has had a significant affect on corporate revenues and earnings. The strengthening USD has pressured revenue growth by:• The translation effects for

multinationals• Foreign buyers find U.S.

goods more expensive when purchasing with their weak currencies (and non-U.S. products are cheaper to buy for U.S. consumers)

• This chart is the Bloomberg Dollar Index. It tracks the performance of 10 leading global currencies versus the U.S. Dollar. The Dollar rose by more than 10% from Q4 2014 to Q4 2015.


Q4 2014

Q4 2015

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Future Market Expectations

With several quarters of negative growth behind us, due in large part to the collapse of oil prices and currency impacts, economists are expecting a more positive trajectory in the back half of 2016.

Q4 2015

AverageSales

AverageEarnings


Conclusion: Earnings growth has, at a minimum, taken a material pause and at worst may be demonstrating early signs of recessionary conditions. While we do expect some stabilization of the earnings picture as the year unfolds, we are carefully monitoring economic data around the globe. We remain focused on investments which offer clients an attractive risk-adjusted return.


Market Perspectives – March 2016

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Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy.


Disclaimer

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market perspective march 2016

Economy & Finance