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market spotlight
market spotlight | monthly review

Monthly Review

The start of 2016 for the equities markets may be described as rocky at best. Stunted by receding oil prices and a plummeting Chinese stock market, January began with stocks hitting the skids in a big way. A late-month rally fueled by an about-face in oil prices, some favorable earnings reports, the prospect of further stimulus from the European Central Bank, and Japan dropping interest rates to negative numbers spurred stocks higher toward the end of the month, but not enough to lift each of the indexes listed here out of negative territory year-to-date. The Russell 2000 and Nasdaq still have the most ground to make up to get to even, while the large-cap Dow and S&P 500 are about 5.0% off their values at the end of 2015.

The close of January saw bond prices rise as yields fell, evidenced by the 10-year Treasury yield which dropped below 2.0%. The price of gold (COMEX) increased by month’s end, selling at $1,118.40–about $58 higher than December’s end-of-month price of $1,060.50.


Market/Index 2015
As of
DJIA 17425.03 17425.04 16466.30 -5.50% -5.50%
NASDAQ 5007.41 5007.41 4613.95 -7.86% -7.86%
S&P 500 2043.94 2043.94 1940.24 -5.07% -5.07%
Russell 2000 1135.89 1135.89 1035.38 -8.85% -8.85%
Global Dow 2336.45 2336.45 2177.64 -6.80% -6.80%
Fed. Funds .50% .50% .50% 0 bps 0 bps
10-year Treasuries 2.26% 22.26% 1.92% -34 bps -34 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month In Review

  • Employment: The labor sector has remained relatively strong as nonfarm payrolls increased by 292,000 in December, while the unemployment rate held steady at 5.0%. According to the Bureau of Labor Statistics, the number of unemployed persons is 7.9 million, while the labor force participation rate for December is 62.6% (+0.1% compared to November) and the percentage of the total U.S. working-age population (age 16+) that is employed is 59.5%. The average hourly earnings for all private-sector employees fell by a cent to $25.24 in December. By the close of January, there were 2,268,000 continuing claims for unemployment insurance, as the insured unemployment rate hovered around 1.7%.
  • FOMC/interest rates: Citing slowing economic growth since its last meeting, the Federal Open Market Committee voted to maintain interest rates at their current level. While noting positive economic trends in labor, household spending, and business fixed investment, inflation remains below the FOMC’s target rate of 2.0%, while net exports continue to be soft.
  • Oil: Oil prices fell significantly during the early part of the month, dropping below $30 per barrel (WTI), likely influencing equities markets, which seemed to follow the downward trend. Nevertheless, despite a surplus of reserves, oil prices surged toward the end of January, closing the month at $33.74 per barrel. The national average retail regular gasoline price decreased for the fourth week in a row to $1.856 per gallon on January 25, 2016, $0.058 below the prior week’s price and $0.188 under a year ago.
  • GDP/budget: A strong dollar and lower oil prices slowed growth in the fourth quarter of 2015 to 0.7% following 3.9% and 2.0% growth in the second and third quarters, respectively. Three months into the U.S. government’s fiscal year, the government’s deficit is on the rise, up 22% at $215.6 billion for the month, according to the U.S. Treasury report for December. Part of the increase is due to the timing of outlays, without which the deficit would be up about 5%. However, disbursements for Medicare and Social Security are up a combined 7.1% compared to this time last year.
  • Inflation: With oil prices remaining low and the dollar strong, inflation remained below the Fed’s stated target rate of 2.0%. The Producer Price Index, which measures the prices companies receive for goods and services, fell 0.2% in December, dragged down by energy and food prices. Producer prices were down 1.0% from December 2014–the 11th straight year of decline from the prior year. The Consumer Price Index declined 0.1% in December. Over the last 12 months, the all items index increased only 0.7%. Retail sales also fell in December, down 0.1% from the prior month. For retailers, total sales increased only 2.1% for 2015, the smallest gain since 2009. The core personal consumption expenditures, relied upon by the Fed as an important indicator of inflationary trends, was down less than 0.1% in December.
  • Housing: The housing market has been relatively strong for much of 2015. The latest figures from the National Association of Realtors® show that sales of existing homes rebounded in December by 5.46 million–an increase of 700,000 over November, making 2015 the best year of existing home sales since 2006. The median price for existing homes in December was $224,100–7.6% over December 2014, marking the 46th consecutive month of year-over-year gains. The number of new home sales in December increased 10.8% compared to the number of sales in November. The median sales price of new houses sold in December 2015 was $288,900, while the average sales price was $346,400, compared to $297,000 and $364,200, respectively, in November. Housing starts, on the other hand, fell back a bit in December, coming in at an annualized rate of 1.149 million–2.5% below November’s figure.
  • Manufacturing: Manufacturing and industrial production continue to be relatively weak sectors in the economy. The Federal Reserve’s monthly index of industrial production declined 0.4% in December, due in part to drop-offs in utilities and mining. Business inventories fell 0.2% in November from October and sales dropped 0.2% during the same period. In addition, the latest report from the Census Bureau shows orders for all durable goods decreased $12.0 billion, or 5.1%, in December compared to November. Not surprisingly, inventories are up 0.5%, commensurate with decreased demand.
  • Imports and exports: Global trade continued its slow pace as foreign markets are still affected by the strength of the dollar, which has driven up prices for foreign buyers. Based on the latest information from the Census Bureau, the U.S. trade balance narrowed by $2.2 billion in November, as exports fell 0.9% in the month to $182.2 billion, while imports also dropped 1.7% to $224.6 billion. Year-to-date, the goods and services deficit increased $25.2 billion, or 5.5%, from the same period in 2014. Exports decreased $99.0 billion, or 4.6%, while imports decreased $73.7 billion, or 2.8%. Import prices fell 1.2% in December, the largest monthly drop since August 2015, while exports fell 1.1% in December, and 6.5% for 2015–the largest decline since 1983.
  • International markets: Amid an apparent economic slowdown, China’s equities markets were slammed earlier in the month as money left the country, prompting the government to take steps to discourage the monetary exodus. The rest of Europe withstood China’s lagging economy, helped by the prospect of more stimulus offered by the European Central Bank.
  • Consumer sentiment: While the equities markets experienced a tough January, consumer confidence did not wane. The Conference Board Consumer Confidence Index® stood at 98.1 in January, while the University of Michigan’s Index of Consumer Sentiment fell to 92.0 in January compared to 92.6 in December, primarily due to stock market downturns during the first month of 2016.

Eye on the Month Ahead

January was a tough month in the equities markets, both domestically and globally. Much of the early market decline has been in reaction to China’s apparent economic slowdown and falling oil prices. Nevertheless, the market did rebound at the end of the month following escalating oil prices. In any case, the presidential primary season kicks off in February, which may influence investors’ tendencies going forward.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron’s (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

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did you know?

Entering an election year, speculation for the impact of these presidential campaigns on the stock market has already begun to swirl. While history shows the returns on the S&P 500 to be generally weaker in presidential election years, removing recessions, there is not much of an election cycle to note. Looking at presidential election years going back to 1960 (excluding 2008), the average return of the S&P 500 has been 9.1% versus 8.8% for all other years.

YearPresidentSenateHouseS&P Annual Return

Election years ex 2008 (avg) 9.1%

All years ex 2008 (avg) 8.8%

Source: S&P/Haver Analytics, Deutsche Bank

bright ideas

Love is in the Air – But your Investment Strategy Shouldn’t Be!

Removing emotion from investing with a quantitative, mechanical approach

Although Valentine’s Day has come and gone, the holiday reminds us to recognize all of the things we love. While this emotion can be great to share with your family and friends, it should not be part of your investment strategy. Avoiding emotional investing may be more challenging than ever with today’s dramatic market volatility. From 2012 until last summer, the S&P fell more than 1 percent in a day only about 8 percent of the time. From August 20 to January 15 of this year, 22 percent of trading days have had a 1 percent or greater daily loss1. In a time in which triple digit point swings in a day aren’t unusual, it is more important than ever to have a mechanical strategy driving your investment strategy.

When it comes to investing, we as humans are affected by emotion. Whether fear of monetary loss or greed for financial gains, or even just placing greater weight on information to support our preconceived notions rather than weighting all information the same — all of these emotions can cause investors and professional money managers alike to make knee-jerk reactions when the market takes a turn for the worse. Studies continue to show the negative impact this reactive approach has over time. For instance, Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) 2015 report showed the S&P 500 returned on average 9.85% per year compared with 5.19% average annual return for individual stock investors from December 1994 – 2014.2

So how can investors avoid making emotional decisions when volatility is the new normal? Here are the three fundamental principals Beacon Capital Management follows to eliminate emotion-led decisions from the investment equation.


First, diversification is key. It’s easy to get caught up in the hype of the “trendy” sector of the moment, but overly investing in a single sector can severely damage a portfolio. (Does the tech bubble ring any bells?) No one knows which way the market will go, and overexposure or underexposure to any market sector can dramatically impact the overall performance of a portfolio. At Beacon, Vantage 2.0 portfolios are invested equally over 11 market sectors to help protect from this risk.

Minimize LOSSES

Second, effective risk management attempts to stop investment losses before they become destructive. Losses impact a portfolio more than gains, and the average investor does not have the time to wait to get back where they started. For this reason Beacon implements a signature stop-loss strategy on our Vantage 2.0 portfolios. If our proprietary index drops a predetermined amount, the stop-loss triggers and automatically sells equities within the portfolio.


Finally, investors should set parameters for investment decisions and stick with them. This helps to avoid selling prematurely out of fear. Setting up a mechanical strategy automates the decisions of when to sell and when to buy back in, keeping emotion out of the equation. This is a fundamental principle for how Beacon executes its investment management decisions.

Beacon Capital Management utilizes all these strategies and more in our innovative Vantage 2.0 portfolios. Every aspect of these portfolios is based on science, so investment decisions are made on facts, not emotions.

Fall in love with an investment strategy designed to keep emotions out of the equation. If you’re interested in learning more about mechanical portfolios that capitalizes on market gains while protecting against catastrophic losses, visit and download our white paper Next-Generation Investment Strategy Marries Growth and Safety: Mechanical Investing Cuts Emotion from Decision-making.



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Every month Beacon Capital Management releases Compliance Corner, a monthly checklist of timely compliance advice and to-dos. From social media to Form ADVs to billing procedures, the monthly checklist and supplement will help you keep your office compliance-friendly. If you are the Chief Compliance Officer for your firm, you don’t want to miss this helpful resource. Download this month’s checklist now.



Beacon Capital Management, Inc. is an investment advisory firm registered with the Securities and Exchange Commission. Additional information about Beacon Capital Management is also available on the SEC’s website at under CRD number 120641. Beacon Capital Management only transacts business in states where it is properly registered, or excluded or exempted from registration requirements.

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