monthly market perspective - june 2016

Market Perspective – June 2016

Experience Insight Impact

biegelwaller.com

Overview: The factors which drive markets can be quite dissimilar over the short and long-term.

Ultimately, we look for growth, the cost of capital, and valuations as long-term drivers. In theshorter-term however, sentiment can dominate the investor psyche. This month we attempt to

gauge the status of these various factors.

Trailing One Year Performance: Volatile But Flat

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As we discussedlast month, themarket has beenengaged in awrestling matchbetween the bearsand bulls for thepast few years,and accordingly,has been rangebound. As of thebeginning of June,markets are at thetop end of therange.

Margin Erosion

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The above chart demonstrates that although margins have beenfalling (orange bars), the S&P 500 (white line) has largely ignored thisfactor for now.

Margin erosion has been a contributing factor for falling earningsfor the past year. The left 4 quarters of earnings declines arerepresented on the bottom left of the above chart. The currentquarter is represented by the middle horizontal line and futuregrowth is to the right. Expectations are lofty and such growthwould appear necessary for markets to continue advancing.

Corporate Operating Margins % vs. S&P 500 Index S&P 500 Profit Growth (Actuals through 1Q16 and Consensus Projections through 1Q17)

Interest Rates and Low Cost Capital

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Interest rates remain near historical lows thanks to a poor May jobs report, and the prospect of the Fed once again delaying the next rate hikes. This allows companies an ongoing refinance opportunity, and the chance to continue to repurchase stock using very low cost debt.

Valuations

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Valuations are at thehigh end of the historical range, with the S&P 500 trading at 18x projected earnings.

Investors Are Currently Expressing Enthusiasm For Markets

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• This index from CNN Money incorporates various demand indicators (including stock momentum, relative strength, breadth, options volumes, stock volatility, and junk bond demand) to judge market sentiment.

• Current conditions suggest investor enthusiasm is at elevated levels (as indicated by the “extreme greed” reading) and corrective action could occur.

Conclusion: In the short-term, investors have looked beyond the current fact pattern of valuations

and growth in sending markets towards the top end of the recent range. This enthusiastic buying(“greed”) historically suggests a contrarian signal for future market performance. For markets to

continue to advance, growth will need to re-emerge as a force. This probably means margins will

need to stabilize and begin to turn upwards. In the meantime, investors await new data as wecontinue to watch Central Bank policy around the globe. As always, our goal is to create portfolios

which balance the current risks with a longer-term perspective in order to meet the goals and

objectives of our clients.


Market Perspective – June 2016

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Disclaimer

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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.

monthly market perspective - june 2016

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