• Market Overview

2015 2nd Quarter Overview

2015 2nd QuarterThe Noise is White

Fears of contagion from the Greek debt crisis and a breakdown in the Chinese economy are captivating the markets and creating volatility. Beginning in early June, “risk off” prevailed and the market spun into negative territory for 2015. Meanwhile, conditions in the US economy are very benign, by contrast. Tim Duy, economics expert from University of Oregon called the US “an island of mediocre tranquility amidst a stormy sea of the global economy.”

Despite the effervescent white noise about international stuff, an empirical view would suggest worries are overblown by investors. Total annual gross domestic product of Greece is $237 billion versus GDP from our little home state of Oregon is $219 billion. Greece’s economic footprint is small. Total debt outstanding is significant at about $330 billion. This would be a hard pill to swallow. But since these holdings are spread out among private investors, European banks, and EU country members, all of which can shoulder this loss on their own,(wink wink nudge nudge) there should be no further contagion to us. Meanwhile, volatility in the Chinese market is a by-product of their speculative markets, fractured trading structure, and the gradual slowdown in their overall economy. The fragility of the Chinese stock markets are also not indicative of contagion that could spread to our markets.

Ultimately, this white noise from these international disruptions should dissipate and our markets should recover from its most recent June decline.
What is the Big Picture? A Flat Market.

Investors gain a big edge if they can identify a major trend. We had a bull market in the 1990s. We had another bull market from 2003 until the financial crisis in 2008. Most recently, the market has been in bull mode from 2009 until last year. Since then, the complexion of the market has been changing.

Now, the market is in a different phase which should continue for some time. Today’s market has a different posture. We call it “The Long Dry Road” or a flat market in which neither the bulls nor the bears can gain control.

Why is the stock market sentenced to mark time in the same range? It is partially due to our economy which continues to be stuck in neutral with very little growth. Currently, our economy is growing at its slowest rate in five years. US GDP growth was actually negative on the first quarter. Corporate earnings are also expected to be down compared to last year, according to Factset Research. Given these factors, it is sensible to expect the stock market will be contained within a trading range at least throughout the rest of this year.
Connecting the Dots

As long as a clear diagnosis for the overall market is understood, investment advisers can be very productive for clients. In the past few years, we advisers have been forced to use defensive measures because the market rose so fast. Advisers assumed what went up fast could decline just as swiftly. A flat market presents purposeful investment advisers an opportunity to add value by choosing best stocks and and deciding on the time frame they are to be held. This process promises to be more fruitful than in the past when there were more clearly defined bull and bear markets.

Are there bargains in this market? Legions of stocks are down over 20% from their recent highs. Caterpillar, American Airlines, DuPont, Google, Walmart, and Intel are all examples of bargains that are down substantially this year. Even Apple has dropped 8% this month.

Other stocks are more widely recognized for their innovation and standout growth. Amazon, Gilead, Netflix, and Under Armor are these examples. They are not cheap, however, and special care needs to be used when investing in names like these.

It is most useful to have confidence the market will not descend notably. The roadmap is clear using this assumption. Invest, wait for favorable conditions, and harvest profits when the market reaches the top of its trading range.
Resetting the Table

We improved our core investment holdings over the past quarter. We disposed many of our stocks after disappointing earnings reports. Examples of these are Alibaba, Apple, Idexx Labs, Linkedin, and Paccar.

Accenture continues to be a core holding. They help companies achieve greater efficiency and establish more secure data networks. In addition, more recently, we added Amazon and Caterpillar as significant holdings.

The market’s current level is about 4% underneath the high from June. A recovery back to those levels should mean good things for the holdings in our portfolios.

Earnings reports begin in July and we eagerly await these results as they will help us to identify the winners and losers in this flat market.

Dan Botti
Portfolio Manager
7/14/15

Past performance is no guarantee of future results. Investment management involves the possibility of losses. Significant general stock market moves up and down can influence the performance of client portfolios. Composite returns are based on client portfolios of over $100,000. Not all clients are included in the composites. All returns include the reinvestment of dividends. All returns are net of fees. Composite returns are derived from aggregated, time-weighted returns for clients of Peregrine Asset Advisers. Individual client returns can deviate from the composite returns. While Peregrine uses the S&P 500 as a benchmark, Peregrine does not attempt to mimic the structure of this index. Individual client portfolios vary. The number of securities held also varies per client.

Do you have questions or would you like to know more, contact Dan Botti.

Overview Archive

 
*Past Performance is no guarantee of future results. Investment management involves the possibility of losses. Significant general stock market moves up and down can influence the performance of client portfolios. Composite returns are based on client portfolios of over $100,000. Not all clients are included in the composites. All returns include the reinvestment of dividends. All returns are net of fees. Composite returns are derived from aggregated, time weighted returns for clients of Peregrine Asset Advisers. Individual client returns can deviate from the composite returns. While Peregrine uses the S&P 500 as a benchmark, Peregrine does not attempt to mimic the structure of this index. Individual client portfolios vary. The number of stock positions also varies per client.