Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Quarterly Market Overview: Q2 2016
Published Date : July 25, 2016
When the Federal Reserve ended its stimulative bond buying program, commonly known as “Quantitative Easing”, some investors questioned whether the U.S. economy would be able to support itself without additional stimulus. Since that time, the economy has continued to grow, albeit at a slow pace, and global equity markets have slogged through a volatile period where returns have been muted while bond yields have fallen to historic lows. This has been a frustrating environment for many investment managers and clients alike as intra-quarter market fluctuations have been significant and the end result has been very little return presented in the marketplace.
In our view, uncertainty is at the root of this market action and we believe it has been brought about by a long list of legitimate concerns including a financial crisis in Greece, an unprecedented decline in the price of oil, slowing growth in China, uneven growth within our own economy, extraordinary levels of central bank monetary stimulus and Britain’s exit from the European Union.
During the second quarter, however, markets experienced a bit of a reprieve as U.S. economic data improved, oil prices recovered from their lows and the U.S. Dollar depreciated. While domestic equity markets ultimately ended the quarter with a positive return, it was matched and, in some cases, exceeded by bonds as it appeared investors continued to look to the U.S. Treasury market for safety and yield. This appeared to be especially true during the final week of the quarter when Britain’s decision to exit the European Union was decided and Treasury yields fell to historic lows.
Our firm navigated the quarter by positioning portfolios conservatively in early April, after the equity market had appeared to recover from its first quarter swoon. At that time, we felt the risk/reward of the equity market had become unattractive and we moved to an underweight position while we increased exposure to cash and Treasury bonds. This was based on our view that valuation was not likely to move beyond its historical average and that earnings growth would continue to be muted by low oil prices and a strong U.S. Dollar. Our firm believes this positioning left us ready to take advantage of the brief market pullback in the aftermath of the Brexit decision.
In recent weeks, the economic outlook has become more favorable in our view and, as we look to 2017, we see signs that earnings growth may accelerate as oil supply finally begins to come down and prices stabilize. From our vantage point, this should lead to a more normalized environment with equity prices appreciating in line with earnings growth. Meanwhile, some asset classes, such as emerging market equity, have become significantly undervalued by our estimation and appear to be showing the potential to generate relative outperformance as GDP grows at an incrementally faster pace than that of the developed world.
If the current economic cycle continues to progress in line with our forecast, we will, as we have historically, look for opportunities to take advantage of volatility. It is times such as these when maintaining discipline and diversification are a key part of a successful investing outcome in our opinion. While we acknowledge that the U.S. is in the later stages of this economic cycle, the firm is proceeding cautiously and employing a balanced approach by investing in assets that we see as attractively valued relative to historical levels while maintaining ballast in order to offset volatility.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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