Weekly Market Recap This week saw a volatile start to the markets for 2016, and survey data showed both Chinese and US manufacturing activity declining last month. Chinese concerns particularly weighed on markets with the Chinese stock market twice hitting its circuit breaker for daily declines. A circuit breaker is a market regulatory control to end trading for the day when market declines exceed a predetermined level. However, there was positive news too, with employment data in the US remaining robust and European economic confidence reaching its highest level since 2011.
The media, thus far, has made much of this early soft patch for the markets after 5 trading days of 2016. However, as a long-term investor, though short term market movements aren't always what we would like, remember that your investment horizon to retirement typically spans decades.
The MSCI ACWI index covers 46 countries and represents approximately 85% of global equity markets. This index has delivered annualized gross returns for the past decade of 5.31%. Given the impact of compounding, the total growth of that stock index over those 10 years becomes 67.7%, though some think of this period as a 'lost decade' for stocks given returns were lower than in many prior decades. In addition, remember, that this 5.31% annualized gross return actually includes a decline of 42% in 2008, a decline of 6.8% in 2011, and a decline of nearly 2% in 2015. So, historically speaking, investors in equity strategies tracking the MSCI ACWI index who have been able to avoid a focus on shorter term declines and look at the broader picture may have seen their money grow, despite several years of absolute declines within the period.
In essence, the broader picture for stocks historically as measured by the MSCI ACWI index is not necessarily one of steady growth each and every year. Rather, it's one of fits and starts with great years such as a 35% return in 2009 or a 23% return in 2013 and also periods of decline. But historically over the past decade the net of those up and down swings has been an attractive level of growth.
So a weak early start to the year, though disappointing, may prove to be a minor event in the broader picture for stock markets. Especially at a time when unemployment and inflation in the US is relatively low relative to history, and growth appears to be accelerating on a global basis for 2016 according to recent IMF forecasts.
Notes:
Chinese manufacturing survey:
https://www.markiteconomics.com/Survey/PressRelease.mvc/e6830696067b4dc5a055eee1b0cd1e70
US manufacturing survey:
https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm
MSCI ACWI performance:
https://www.msci.com/resources/factsheets/index_fact_sheet/msci-acwi.pdf
IMF Growth Forecasts (October 2015):
http://www.imf.org/external/pubs/ft/weo/2015/02/pdf/c1.pdf
EU confidence index:
http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/2015/esi_2015_12_en.pdf
US jobless claims:
http://www.dol.gov/ui/data.pdf
Disclaimer:
The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions and market conditions prevailing at the time of investment may lead to different results. Clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. Any tax strategies discussed should not be interpreted as tax advice and do not represent in any manner that the tax consequences detailed will be obtained. Clients should consult with their personal tax advisors regarding the tax consequences of investing.
The MSCI ACWI index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI index consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The figures for the MSCI ACWI index do not reflect the deduction of any fees or expenses, which would reduce returns. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time (each, an "index") are provided for your information only. Reference to an index does not imply that the portfolio will achieve returns, volatility or other results similar to that index. The composition of the index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. Investors cannot invest directly in indices. Your Portfolio Summary | $8,741.20 Your Total Assets | Ways To Improve Your Portfolio | 0 Accounts with Actions | Your portfolio has no recommended actions right now. We'll watch over your investments and alert you with an email when there are actions for you to complete. Sign in to see detailed steps  | | Sign in to see your full dashboard | | 
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