Broker Check

Client Update: 2nd Quarter 2016

| September 01, 2016

The U.S. Stock Market has recently been in a broad-based rally mode.  Although very volatile, the market made little progress from December of 2014 through June of 2016.  This pattern caused three and five-year returns to lose some of their luster as good quarterly results were replaced with flat or negative quarters.

The 2016 year-to-date return for the Dow is up over 6% and the one-year return is over 2% positive.  Moderate Balanced Funds are up about 4.6% year to date per the Morningstar Target Risk benchmark.

Bond yields have fallen to the point where the 10-year US Treasury is about 1.5%, but worries about interest rate hikes have lessened; overhang of the US debt is causing slow growth and making it difficult for the Fed to raise rates.  The European Central Bank has been easing and some countries are using bonds with negative yields.  US equities have had international issues, but the lower valuations and European Central Bank policy should give them a boost. 

  • Currently, only 22% of individual investors in the U.S. identify themselves bullish on equities, well below the historical average.
  • Since the start of the bull market in the second week of March 2009, investor sentiment has shown a great deal of week-to-week volatility, but it has fluctuated below its long-term average more than half the time.
  • We are reminded of Sir John Templeton’s famous quote, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”  On that basis, this bull in U.S. equities seems to be a long way from death’s door.

Note that because bond yields are so low that there are few alternatives for investors besides stocks.  The dividend yield in the S&P500 is currently 2%, and stocks may offer more upside than bond funds if corporate earnings improve in the second half of 2016.

Many people think that bonds are not risky, but bonds lose market value when interest rates rise.  The current yield on the 10-year Treasury Is 1.5%.  With a current duration of about 9.0, the market value of the 10-year treasury would fall 9% if interest rates rose 1%.  If rates stay the same for 10 years, the purchasing power of the money invested in the Treasury Bond would fall because of increases in the cost of living.

For these reasons and many others, a diversified mix of stocks and bonds is prudent for most investors.  We generally apply a conservative rate of return assumption of 5% when preparing financial plans.  One way for a moderate 60% stock, 40% bond portfolio to return 5% would be to have returns of 6.3% for stocks and 3% for bonds.  The longer term return for 60/40 moderate portfolio has actually been closer to 7%.

Security Updates

Your investment accounts are held in custody in a Trust Company that has many layers of security. SEI Private Trust Company maintains custody of all client accounts and does not send client funds to third party firms.  Client assets are held in client-named accounts so there is no comingling of client assets or use of client assets as collateral in marginal lending.   A copy of SEI Private Trust’s brochure, “Destination:  Security.  Safeguarding your Assets at SEI Private Trust Company” is available upon request or online at

Thieves and hackers have learned that it is much easier to steal money by way of phone scams and emails that target individuals instead of big institutions that have invested in complex firewalls.  The IRS reports that it has seen a surge in tax scams.  “Scammers make unsolicited calls claiming to be IRS officials.  They demand that the victim pay a bogus tax bill.  They con the victim into sending cash, usually through a prepaid debit card or wire transfer.  They may also leave ‘urgent’ callback requests through phone ‘robo-calls,’ or via a phishing email.”  “Many phone scams use threats to intimidate and bully a victim into paying.  They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.”  “They may use the victim’s name, address and other personal information to make the call sound official.”  If taxes are owed, the IRS would not ask for payment information over the phone or threaten law enforcement without you first receiving paper notices.

Our own clients have also told us about recurring emails ostensibly from their credit card company that want you to call a phone number because of a threat.  Credit card companies receive thousands of phone calls per day about this productive scam.  It is a good idea to change your email and other passwords from time to time.  We have seen situations where client emails have been hacked and read for months by criminals waiting for an opportunity to pounce.

In addition to other protections, Northeast Advisers will not wire or otherwise transfer money without talking directly to our clients.

We thank you for your trust and confidence.

Annual ADV Offer / Privacy Notice

A copy of the Annual Disclosure Form that NAI files with the United States Securities and Exchange Commission and Privacy Policy are available upon request.  If you wish to receive a copy, please call or email us at or 800-971-7039.

Michael Devine, MSFS, AIF / Becca Cummings, CPA, AIF / Eric Bleiler, CPA/PFS CFP®