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Jim: Hi everyone today is Wednesday, February 10, 2016 and this is our midweek midday market update call. We hold these national calls right in the middle of the week as we put our pencils down to provide you with what our thoughts on market changes, changes in our opinions and to answer any questions you may have in a public forum.

First, however, Bernie has a few comments she will share with you now.

Bernie: Thank you Jim.

My comments and recaps today will be brief to allow Jim more time to discuss his thoughts and what we are doing on the investment management side of things in your accounts.

There maybe some of you that are worried about a recession based upon what is going on in the markets. Our Chief Economist Scott Brown focuses on this topic within his Economic Trends report this week.

Here is the definition of a recession: Than National Bureau of Economic Research (NBER) defines a recession as “a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” The NBER’s Business Cycle Dating Committee determines the beginning and end dates of a recession. Their job is to be definitive, not timely. For example, the 2007-2009 recession was declared 12 months after it began and its end was declared 10 months after the fact. Currently, based upon the NBER criteria that they review, we do not appear to have entered into a recession. Scott comments further on some additional charts and other considerations, but finally concludes as follows: “While the U.S. Economy appears likely to avoid a recession, a downturn cannot be ruled out. Still, slower growth and downside risks are enough of a concern for investors.”

On another note, Janet Yellen will present the Federal Reserve’s semiannual Monetary Policy Report to Congress today. Yellen comments that since her appearance before the Committee last July, the economy has made further progress toward the Federal Reserve’s objective of maximum employment. And while inflation is expected to remain low in the near term, in part because of the further declines in energy prices, the Federal Open Market Committee (FMOC) expects that inflation will rise to its 2% objective over the medium term. Also, the Committee is continuing its policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities. As highlighted in the December statement, the FOMC anticipates continuing this policy “until normalization of the level of the federal funds rate is well under way.” Maintaining their sizable holdings of longer-term securities should help maintain accommodative financial conditions.

I’ll now turn the call over to Jim for his comments and observations.

Jim: My comments today are going to be in two parts. The first will be about losing and the second will be more details around our indicators.

The past 12-18 months have been irregular times in our financial markets. This happens and we have no control over it. The aftermath and epilogue of the 30 year bull market in bonds has been litigated and narrated for the past 3-4 years and finally during the past 6 months we’ve been seeing the early part of what might be the next phase of the bond market: rising yields and declining fixed income investments.

As investors—large and small—move their chess pieces around the board, invariably they end up hitting other pieces. This transition affects all other asset classes from stocks to money market to commodities to currencies. My guess is that this current shuffling will continue and could be married to other stories—more global news—like China and terrorism and fatigue in the emerging markets.

The stock market, which has shown volatility in unique narrow ranges (up and down 16 times within a 2-4% range in 2015) as well as spear shaped declines—the rapid torching fall in August and then the painful beatings since the beginning of this year. Losing is not a trait anyone lines up for, owning declining assets in negative times is part of the process of winning, yet it is the last thing anyone wants to listen to or participate in.

Losing is a very personal feeling that is remarkably different to each investor, although the common person may think we all experience losing the same. We don’t. Losing can be traced back to our more formative, non-investor years and how we first learned about losing. That has a significant impact on how we deal with losing today, whether in sports—as a fan or player—or in not getting a job we have applied for or in our case where our investments are declining in value instead of going up like why we bought them in the first place. No one trains us to lose, even though it is the most important part of winning. Especially in investing.

One issue with losing is that we don’t know when the losing will stop because the future isn’t ours to know or as Yogi Berra would say, “The future ain’t what it used to be.”

The most important role we play as your financial advisors is getting you through these losing periods. In fact we are trained in that, not in a classroom but in the laboratory of the markets themselves, our experience, having been through many times similar but not identical to what we are experiencing now. One way we deal with these times is setting up our portfolios to resist declines to the same degree of the markets. Clearly, we have no way of guaranteeing we will have that result, but lo and behold our signature account and 2 or 3 of our other newer models are doing that once again.

That leads me to our process, a combination of strategies and tactics that we are now using in our 15^th year of investment management and it hasn’t hurt us in the down markets yet.

The second part of today’s message is about our indicators which are at interesting inflection points. Believe it or not, fixed income has taken over as the lead asset class, followed by domestic equities followed by cash, then currency, commodities and in last place, international equities. That change of leadership has taken place just in recent days and for sure will irritate the fundamental pundits that are calling for higher yields but not higher bond values. I can hear those pundits shouting, “Ooops!” now.

So our major indicator, the New York Stock Exchange Bullish Percent is positive, and has been for a week now. That actually is historically correct. The bullish percent when it reverses up like it did on Feb 1 turns like that during times when it doesn’t FEEL like it should. This is exactly why Ernest Staby designed it that way! He wanted to know when to be bullish when the markets were feeling negative, for this gave him a place to start making his investment decisions.

Our recent investment decisions were to begin to re-align our holdings with the better relative strength investments and trim back some core positions and move toward being more congruent with the asset class line-up I described earlier. In basketball, defensive coaches will tell you to keep your eye on the player’s body movement, not the ball, for offensive players fake with the ball, but they can’t fake with whatever direction they are moving their body in.

Following our indicators as we do, is our way of keeping an eye on the body (what supply and demand are doing to prices, looking at what large groups of stocks are doing) and not being faked by the basketball (the TV and media noise and fundamental myths from pundits still trying to predict the future.)

Before we conclude and get ready for next week, are there any questions or observations any of you might have, I will un-mute the lines so that you can tell us your thoughts.

Opinions expressed are not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success

Diversification and strategic asset allocation do not ensure a profit or protect against a loss.

The Bullish Percent Index (BPI) is a breadth indicator based on the number of stock on Point & Figure buy signals within an index. Developed by Abe Cohen in the mid 1950s, the Bullish Percent Index was originally applied to NYSE stocks, but is also applied to the OTC market, relying on NASDAQ.

The NASDAQ Composite Index is an unmanaged index of all stocks traded on the NASDAQ over-the-counter market. The S&P 500 is an unmanaged index of 500 widely held stocks.

There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. Dividends are not guaranteed and will fluctuate.

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