On the “lost” fourth quarter…

Six consecutive up stock markets from 2009 through 2014 gave way to volatility and choppiness in 2015 and by August an accumulation of fear set in. It’s almost like investors were itching for a downturn. Maybe we needed something to complain about. Well, we got it. And most folks seemed to lose sight of the months that followed. A volatile first half of 2015 combined with a sharp sell-off in August and a sprint to the bottom this year, and now everyone is left reeling. At least, that seems to be the revisionist’s history for the moment.

Noticeably absent from this newfound tale of woe: the fourth quarter of 2015.

Don’t look ahead on this, but what do you think the S&P 500’s total return was for the fourth quarter? Was it down a lot—maybe even more than five percent? Was it rocky, but only down a few percentage points? Did it somehow squeak into positive territory?

The answers to those queried scenarios are—in order—no, no and no.

The S&P 500 generated a total return north of seven percent (+7.04% to be exact) in the fourth quarter of 2015. Can you believe that? Somewhere, sandwiched underneath several layers of down-market bread, mustard, mayonnaise tomatoes and cheese, was a nice, meaty stock return.


Treading water is better than sinking…

…Believe it or not, the S&P 500 closed calendar year 2015 up 1.38%.  Who knew?

Now, that 1.38% movement does carry some significance—arbitrary as it may be. As already alluded to, 2015 marked the seventh-consecutive up market year for the S&P 500. That’s quite a run to follow up the first decade of the millennium which some dubbed “the lost decade” as a result of its two market sell-offs (2000-2002 and 2008). Secondly, a total return of just 1.38% is the smallest market movement of the S&P 500 since 1994. We’ve observed on a few occasions that quarterly reporting and annual recaps are often moot points for long-term investors focused on goal-based investing more so than calendar pages. But it is worth noting that from 1995 through 2014 (a 20-year run) the market moved quite a bit one way or another each year. In 2015, it treaded water.

But in the grand scheme of things, treading water isn’t sinking, so that’s relative progress.


Oh yeah, there’s still work to do in fixed income…

…We reworked our fixed income fund exposure in advance of December’s interest rate hikes. Our priorities there were two-fold: 1. Reduce leverage in the event of a rate hike larger than expected or predictions of a faster-than-expected schedule for rate increases; and 2. Fully understand the underlying positions in closed-end funds before remaining committed. Fortunately, these moves were also accompanied by a number of individual bond opportunities that found their way to our desk in the municipal bond space.


The entire newsletter is available here.



Andrew Hall is the Vice President of Narwhal Capital Management.

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