A Review of 2016 Stock Market Results

Over the years, I have developed a network of other fiduciary financial planners. From time to time, I invite one of these individuals to contribute an article of interest. Today, Stephan Reh of Reh Wealth Advisors LLC shares his thoughts about 2016 Stock Market Performance. Steve is a financial advisor in La Verne CA. He is founder of Reh Wealth Advisors where he performs comprehensive financial planning and portfolio management.

As we approach January 2017, I thought it might useful to review January 2016. In January 2016, the S&P500 had dropped 5% and small cap value stocks dropped over 9% (measured by Guggenheim S&P Small Cap 600 Pure Value, RZR):

S&P 500 January Results (as measured by VFINX):

January S&P 500
Source: Bigcharts

S&P Smallcap 600 January Results (as measured by RZV):
January S&P Smallcap 600
Source: Bigcharts

Commentators started saying things such as small value normally has its best months in January or “we just came off our worst pre-election year since the great depression”. In summary, January 2016 was begging investors to panic and move away from their long term goals.
How has 2016 Performed?

As of December 8th 2016, the S&P500 measure by VFINX (Vanguard S&P500 Index Fund) has gained over 12% for the year. The Guggenheim S&P Small Cap 600 Pure Value index is up around 40% year to date after stumbling out of the gate.

S&P 500 Results Through 12/8/2016 (as measured by VFINX):

YTD S&P 500
Source: Bigcharts

S&P Smallcap 600 Results Through 12/8/2016 (as measured by RZV):
January S&P Smallcap 600
Source: Bigcharts

 

What did the Election Teach Us?
The stock market rallied going into election night on the premise that Hillary Clinton would win the election. Then Donald Trump won the election to the surprise of many. Then the market has been on a tear ever since. Sometimes we need to remind ourselves that market commentators are looking in the rear view mirror and trying to explain what happened. At times, these explanations may appear to be facts when they are merely opinions on why the market moved a certain direction. As investors, we must be vigilant against distractions that tempt us away from achieving our long term goals.

 

The Takeway
Every year the market gives us the chance to get derailed from our long term investing goals. Since 1980, the average intra-year drop of the stock market is 14.2%. Despite seeing a double digit drop most years, the stock market over those 36 years has generated a positive return in 27 of the 36 years (Source JP Morgan’s Guide to the Markets).
So this January, if we see a repeat of 2016 and the market has a pull back, think back to January 2016 and where we ended up. Don’t let the market tempt to derail your long term plans based on short term fears. Investment Advisors such as Greg Johnston is an expert in helping you achieve your investment goals. He can help tailor an investment plan that will help keep you from being derailed when the market tempts you to deviate from your goals.

 

Stephen Reh CFA, MBA, CFP® is a financial planner in Southern California. Steve founded www.investwithsteve.com and Reh Wealth Advisors LLC in 2010 to provide fee only asset management and financial planning. If you are in the Southern California area looking for financial planning or investment advisory services, give Steve a call.