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Home > Our Resources > Articles > What Now?

What Now?
January 12, 2016


We know you don’t make forecasts, but in the past, you’ve described your outlook as being cautiously optimistic. With all the turmoil the global economy and markets experienced in 2015 and into the first days of 2016, is that still a reasonable expectation?

Absolutely! No one knows what the global economy will be like over the next twelve months and beyond, however we can examine the current data. While we have seen some weakening in parts of the economy, GDP still seems to be on a path to be greater than 2.0% and corporate profits for U.S. companies are growing again after a slight decline last year.

Are you concerned that a slower growth engine in the U.S. might make it vulnerable to a recession?

Compared with many other parts of the world, the United States stands out as an island of prosperity. Inflation in the U.S. is low, job growth continues at a steady pace, wages are starting to rise and for now there are no signs of a recession. Some fear that the Federal Reserve will raise interest rates too far and too fast. We don’t think that is likely and in fact this slow growth environment could continue for years to come.

The global economy has been suffering from a slow-down in growth but is showing signs of recovery. Is this a positive sign for global growth as well as for the U.S.?

The end of the commodity price boom and especially the drop in the price of crude has negatively impacted some country and corporate revenues, but it also positively impacts the disposable income of consumers, which could lead to an increase in consumption. Even with continued expansion in the U.S. much of the global economy remains in a slump. After more than three years since becoming head of the European Central Bank, Mario Draghi finally initiated an aggressive quantitative monetary easing program in December with the expectation that providing this liquidity will boost growth and shore up confidence. For now it does look like European exporters will see brighter days ahead, but overall markets remain skeptical. And even with the sharp decline in Chinese stocks, their economy continues to grow at rates far exceeding most other markets.

Now that the Fed has ended its quantitative easing program is the prospect for higher rates a threat to investment returns and the growth of the economy?

In December the Fed finally ended its extraordinary policy of monetary ease by raising the Fed Funds rate by 0.25% and has said that future rate increases will be gradual and be made at a time when trends for the economy and employment are showing improvement. It seems most likely that the overall rise in rates will be muted. Probably the biggest concern is that this may lead to an increase in the foreign exchange value of the dollar, negatively impacting trade and oversees profits.

Whitnell’s Perspective on Markets and Investing

Fixed Income: Prospective returns for most fixed income investments are not attractive when bought at current prices, especially at a time when inflation and interest rates are expected to be on the rise. Although high quality bonds may help to buffer equity volatility, they offer inadequate returns at current prices.

Equities: In 2015 stocks related to energy were the poorest performers as crude oil prices plummeted. In addition, stocks with the lowest yields or no yield selling at high valuations outperformed stocks that had more attractive valuations. We think this is an anomaly and not likely to be a recurring theme. Our view is that there continue to be selected opportunities across most equity markets for investors to earn attractive returns. We favor quality large-cap and mid-cap stocks with sustainable earnings growth and attractive valuations. These investments may be found domestically or oversees, in developed and emerging markets.

Any final thoughts?

As always, it’s critical that investors accept volatility as normal and take advantage of investment opportunities that volatility presents. Each should have a strategic asset allocation, designed to achieve their long-term investment objectives that they can stay with when markets face times of stress. Often the greatest rewards come following these times of discomfort. We wish all of our clients and other friends the best for 2016.



Note: We have gathered the information contained in this report from sources we believe reliable; however, we do not guarantee the accuracy or completeness of such information. You should not assume that any discussion or information contained in this market commentary serves as the receipt of or as a substitute for personalized investment advice from Whitnell & Co. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission.


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“Today’s investors have more options and education than ever before. But learning doesn’t necessarily create wisdom. I enjoy leading our investment committee to create unique solutions that the guys on TV simply miss.”