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2401 Meadow Creek Drive
Medford, OR 97504



January 2016 - Market Update
World Markets in Turmoil
After all of the up and down volatility in 2015 the S&P 500 basically closed  flat on the year. The Nasdaq was up, but only because of big gains in just handful of stocks, namely the so called FANG stocks, Facebook, Amazon,com., Netflix, and Google. The average stock was down, in many cases dramatically so, i.e., the oil and commodity stocks.

With such poor 2015 market breadth, meaning just a limited number of stocks moving up, investors wondered whether the laggard stocks would catch up to the the FANG stocks or if the FANG stocks would retreat as we entered into 2016. The first week of the new year has given us the answer. Last year's winners are now taking a beating and the overall market is in correction.
Why is the Market having such a Bad Time Now?

The headwinds at the moment are considerable. I will list the negatives:

  • Both emerging markets as well as Europe and Japan are in or near recession
  • Oil and commodity prices have fallen in a big way
  • China growth is slowing and their market is in decline
  • The Federal Reserve is raising interest rates

The combined factors above have dampened investor enthusiasm for the moment. Investors and institutions seem to be on a buyer's strike. I personally think the Federal Reserve's decision to raise interest rate was very ill timed.

Time to be Defensive!
While most advisers and investors believe the markets will move higher this year and that the secular bull market is still intact,  a 10 to 20 percent correction  is entirely possible. I think it is prudent to take a defensive posture until the sellers exhaust themselves and market begins to stabilize; capital preservation is my primary objective right now.

How I have Handled Client Accounts
I recognize that the Federal Reserve is not backstopping the market as in they did in the past. The market will now rise and fall on it's own merit. Keeping interest rate so low for so long has caused distortions in markets. The market will once again be governed by the old standards and company stocks will be valued based on their balance sheets, earnings and future prospects. This process could play out over the next few weeks or months.

I have followed recent market activity closely taking note of those sectors showing weakness and those sectors showing strength. Utility stocks and consumer staple stocks have held up vary well compared to all other industry groups. We have position in the associated ETFs, XLU (utilities) and XLP (consumer staples). We have just five individual stocks in the portfolio, all of which are rated either buy or strong buy. I just added Walmart which is going up as the market has been going down. 

We have a Managed Futures fund (symbol HFXAX) that I put in the portfolio late last year. This fund has a history of making money in volatile and declining markets. (see year by year performance chart below) I will be watching it closely.

All GWM folios are at least 50% cash at the moment. I am prepared for take further defensive action as may be required. 
Notice how well this fund performed 2007, 2008 and 2009 (the Great Recession Years). During this same time the S&P 500 declined by over 50%.

Managed Futures fund (symbol HFXAX) 
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2015 Tax Docs
I will notify you by blog or email when 2015 Tax Docs become available.
* A copy of the Gerritz Wealth Management, Inc. Form ADV Part II is available upon request.