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2016: Looking Back and Looking Forward

As we put pen to paper and prepare our thoughts for our traditional January letter, we are watching with great interest to see if the Dow Jones Industrial average will punch through the highly anticipated 20,000 level. Market spirits are high, but in looking back on 2016 it really seems as if we have to break the year into two parts and speak to each of those markets individually.

No sooner did the 2016 New Year’s fireworks fade into the darkness than the stock market started heading lower. Although a ten percent correction in the stock market is not uncommon, having the market start a new year by immediately declining by double digits is, in fact, a very unusual occurrence, and in this case marked one of the worst starts to a new year on record. As we moved into February, the stock market and oil prices continued lower until around mid-February when concerns over recession waned and oil prices bottomed. At that point, our call (from our 2015 letter) for a potential 8% to 9% stock market return for 2016 looked to be a real challenge to achieve. But as the year went on, more jobs continued to be created, interest rates remained low and even moved a bit lower, and corporate earnings continued to be solid. Despite these positive indicators, shortly after the market bottomed in the first quarter a well-known market prognosticator called for an 80% decline in the market in 2016. As there has been no shortage of doomsayers over the last seven or so years, it seems that as the economy continues to grow and the markets continue to move higher these predictions must get more extreme in the hope that someone will actually pay attention to what they are saying. Hopefully no investors took this “call” seriously enough to cash in their stocks!

As 2016 progressed and the economy continued to show signs of modest growth, the stock market fought its way back from its initial selloff and we saw the market move into positive territory as the first quarter drew to a close. During the summer months, which are typically quiet as many families and traders are out of the office and on vacation, the markets were caught off guard as voters in the UK decided it was in their best interest to exit the European Union (aka Brexit). This was followed by a very quick and violent decline in the markets and an equally rapid snap back—again, enough to give anyone who thinks market timing is an easy proposition quite the case of whiplash. As we entered the fourth quarter all eyes were focused on the election here in the US. To take a closer look at the numbers, on the Friday prior to the election the market was trading at a lower level than the same day a year prior and just barely up vs. two years prior. On the morning of November 9th, we all woke up to new and different investment world. Since the election the stock market has set new highs, while interest rates have also moved up dramatically (which in turn, has caused bond prices to decline). This has all happened largely in anticipation that the new administration will enact polices that are friendly to companies and shareholders, such as cutting personal and corporate income taxes, rolling back regulation, and implementing a significant infrastructure spending bill. While all of this remains to be seen (and much is controversial in terms of long-term impact on the federal deficit), there does seem to be some appetite in Washington to support at least some of these pro-growth, lower-tax initiatives. And however we might all feel individually about the outcome of the election, there is no question that these policies could give the US stock market a reason to move higher, despite the fact that valuations today are considerably richer than they were twelve months ago.

So where do we go from here? Quite frankly, in all of our multi-decades long careers, we don’t believe we have seen such divergences of opinion as to where the market will head in 2017. To that point, just the other day on CNBC’s Closing Bell, one of the traders on the floor of the NYSE called this “the mother of all overvalued markets.” Just the next day we received a research report from the chief economist of one of our asset management partners titled “36,000 Dow,” expressing his opinion that this is a number that we could see the market attain over the next four or five years. Investors may want to take this with a grain of salt, but for the first time in many years there are some very optimistic, even eyebrow-raising market forecasts being put out. Predictions aside, some things that we do know is that 3Q 2016 GDP was just revised up to one of the highest levels of growth in years. Amazon just stated that holiday sales in 2016 were “the best ever,” and the most recent consumer confidence number is at the highest level in fifteen years. As we enter 2017, everyone “stayed tuned,” as it looks like it may be a very exciting market year!

Closer to home, Nichols Geegan King had another strong year of sharpening our skills and building our practice to better serve high net worth clients. We continue to be ranked among Raymond James’ top teams nationally, and to be involved in our Tampa bay area community on many levels. Among the team’s achievements in 2016: Laurie Parker was promoted by the firm to the title of “Practice Manager,” which is appropriate considering that she has primary operational responsibility for our team’s well over half a billion dollars under management. Leah Alderman is currently completing the CRPC® (Certified Retirement Planning Counselor) designation, focusing on such areas as retirement income planning, including social security claiming strategies, Medicare, long-term care insurance, and estate planning. Kathy Roulston marked her one-year anniversary with the team, and has enjoyed getting to know many of our clients and their families.

Among his other responsibilities, T.J. King is continuing to work with our firm’s top management in developing an SRI (Socially Responsible Investing) platform to be offered to clients who are increasingly interested in having investments that are aligned with their own personal values and philosophies. Also during the year, Janet Nichols joined both the general and foundation boards for the Tampa Bay History Center, continued to work closely with the University of South Florida, and was once again selected as a 2016 Barron’s Top Woman Advisor nationally. Along those same lines, Greg was nominated by our firm to the 2016 Barron’s national Top Advisor list, and is pursuing his Wealth Management Specialist (WMS) designation.

Although these are all great developments for our practice, we are especially excited to announce our newest team member, Robert Andrew Hays IV, who goes by “Andrew.” As our longest tenured clients know, our team was originally formed and developed by Andrew’s grandfather, Bob Hays, a respected Tampa business leader who spent 45 years in our industry. We very much wish that Bob could be here today and that he could have seen Andrew over the past few years, completing his finance degree, interning for us over two summers as well as working for another financial services firm, and generally preparing himself to begin his career with our team. It is also of interest to note that Andrew attended college on a tennis scholarship and was captain of the tennis team, so if anyone wants to hit a few balls, he is definitely interested in getting together. Welcome aboard, Andrew!

In closing, we want to express our sincere gratitude for the trust and loyalty that you, our clients, show us every day. It is a privilege to serve you and your families, and we will never stop working to earn that confidence every single day. Best wishes for a happy, healthy and prosperous 2017!

The Barron’s list of Top 100 Advisors and Barron’s annual list of the top women advisors reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors’ practices.

Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.