Market Analysis – September 2016

Market Analysis – September 2016

The decision by the Federal Reserve at their September meeting to not raise interest rates brought some sunshine to the market. Financial and Technology stocks performed well in the third quarter. This alleviated concerns that advances in stocks are not sustainable unless the financial sector participates in the gains. The financial sector is rallying in spite of a couple problems. One is the thinly capitalized Deutsche Bank facing a potential huge fine in the US for its role in the 2008 mortgage crisis.The other is the sordid scandal unfolding at Wells Fargo over its unethical sales practices in retail banking operations. The prospect of the Fed raising rates by year-end strengthens banks because higher rates will increase their profitability.

The US Election

Now that we are past the first presidential debate, the odds point to Hillary Clinton as our Very close image of the red, white, and blue colors of an American president. Markets would likely prefer a Clinton win as Trump would bring major shifts in policy and considerable uncertainty. It seems clear Clinton believes trade is a net job producer for the US. From a market perspective, Clinton will be viewed more favorably on trade and immigration policy.

Stable Growth and Cash Reserve Strategies

Our Stable Growth Strategy is a combination of our conservative Class 4 Total Return Funds and our Class 5 Bond Funds. The goal of Stable Growth is to reduce market risk while aiming to grow ahead of inflation. Our Cash Reserve Strategy is even more conservative consisting of 100% bond funds. The Cash Reserve goal is to provide a better return than is available from banks and money market funds. Both these strategies have performed positively this year as conservative allocations have turned out well.

Heads Up

Each time a mutual fund or Exchange Traded Fund (ETF) pays shareholders a dividend or capital gain distribution, the share price declines by the same amount as the distribution. For example, a fund closes the trading day with a share price of $10.00. The next day the fund pays out a dividend of 32¢, and the share price of the fund will decline 32¢ to $9.68. Most shareholders reinvest distributions back into the funds, so the next day they automatically buy 32¢ more shares for each share they own. They now own more shares, and the total value of all the shares they own is accounted for by the 32¢ per share that was reinvested. Funds tend to pay out more capital gain distributions at the end of the year, so beware when you see a share price drop an unusual amount; check to see if the fund is paying a distribution.

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