Wealth Management

September 2015 Monthly Investment Commentary

August brought a sharp rise in global stock market volatility as worries about global economic growth, particularly in China, weighed more heavily on investors. Stocks exhibited wild fluctuations throughout the latter half of the month, largely driven by momentum and investor swings of emotion rather than fundamental changes. U.S. equity market volatility, as measured by the VIX index, spiked to more than 50—the highest reading since the 2008 financial crisis. Given this backdrop, global stock markets finished the month in sharply negative territory. Larger-cap U.S. stocks declined more than 10% over a six-day period—the first 10% correction since 2011—before reversing to finish the month down 6%. Developed international stocks also had a rough month, finishing down more than 7%, while emerging-markets stocks were the biggest losers as massive declines in Chinese stocks dragged the index to a negative 9.9% August close.sept2015

As is typically the case in a volatile equity market, core bonds benefited from a flight-to-quality scenario. The core bond index finished the month down 0.4%; not a good return in a normal market environment, but core bonds nevertheless provided balanced investors with a margin of protection from stock market losses. Riskier segments of the bond market, such as high-yield bonds and floating-rate loans saw slightly higher declines, though overall the domestic bond market was a relative safe haven in August.

In our view, the recent market turmoil reflects a recognition by investors of some of the macroeconomic concerns we have expressed over the past few years, including the uncertainty and unintended consequences from unprecedented accommodative monetary policies (resulting in ultra-low interest rates) and the effects of a slowdown in China on global markets. As such, while we never try to predict the precise timing of a market decline, we are not surprised by the recent turn of events. Our portfolios are slightly underweight to risk assets in favor of lower-risk bond funds and alternative strategies, positioning that ultimately benefited our performance relative to our portfolio benchmarks.

We view market volatility as a part of the predictably unpredictable nature of investing in stocks. An important part of successful investing involves riding out these periods of nervous markets and remaining focused on long-term fundamentals. It is critical that you have an investment process that provides the discipline to avoid making panic-driven portfolio decisions that are almost always detrimental to your long-term investment goals. We hope our clients take comfort in knowing that we have positioned our broadly diversified portfolios to withstand a wide range of scenarios. In fact, we welcome short-term volatility as it can create tactical opportunities for us.


This information is provided for general information only, and is not intended as personalized investment advice. Reading the above is in no way intended to be a substitute for individualized investment advice, and no conclusions should be drawn from this information regarding any potential investment. Certain material in this work is proprietary to and copyrighted by Litman/Gregory Analytics and is used by Capital Trust & Associates, LLC with permission. Reproduction or distribution of this material is prohibited and all rights are reserved.

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