1^st Half Review

Julian Fellowes, mastermind of the hit series Downton Abbey, could not have written a more compelling script for financial markets in the first half of 2016. Investors watched episodes of panic and anxiety, scenes of disorder and chaos, installments of resilience and recovery, and were left in suspense as to what may happen next. In the end, most portfolios achieved positive performance for the period. Bonds delivered solid returns and quality stocks experienced a nice resurgence, buoyed by renewed appreciation for financial strength and dividends. Foreign equity markets generally lagged, amid slow growth and political trauma.

Political Uncertainty

Even the imaginative Mr. Fellowes would be hard-pressed to match recent political drama. Impeachment proceedings are underway in Brazil. “BREXIT” has shaken the establishment in Great Britain and Europe. Not to be left out, both major U.S. political parties are poised to nominate widely disliked candidates. We think electoral politics will be an added source of uncertainty in the second half. Both sides will warn about the horrors of an opposition victory, but our thinking is more measured. The wide variety of legislative and judicial checks and balances featured in our system – a lasting legacy from our remarkable Founding Fathers – assures that change will be evolutionary rather than revolutionary.

Slow Growth

As outlined in our “Bartlett on BREXIT” commentary emailed on June 27 (available on our website at www.bartlett1898.com/brexit), we think slow growth and low interest rates will characterize the world economy during the next few years. The U.S. should be comparatively resilient, with growth generally around 2%. In this regard, last week brought encouraging updates from the manufacturing and services sectors. Moreover, the latest regulatory “stress test” results showed the U.S. financial system to be well-capitalized even under adverse economic scenarios, and most major banks were permitted to implement significant dividend increases. Meanwhile, the Bank of England indicated further interest rate cuts are on tap for the U.K., and this monetary accommodation will likely be paralleled in Europe. All things considered, vigorous growth is unlikely but a recession is also not probable. Finally, two factors that lowered corporate profits last year – falling oil prices and a rising U.S. dollar – should be less negative going forward.

Navigating the Noise

These days it seems social media (Facebook, YouTube, Twitter, etc.) gives everyone a megaphone. In a polarizing election year defined by many global uncertainties, the resulting “noise” manifests constantly. In such an environment, it becomes ever more important to carefully focus on matters of lasting consequence, thoughtfully gauging the impact of material developments while not being distracted when less essential factors are sensationalized. From an investment perspective, failure to do so could make hazardous practices like “market timing” and “performance chasing” all the more seductive. You can rest assured Bartlett will endeavor to be dispassionate and objective. We’ll be guided by time-tested investment policy factors, emphasizing value-based selection of quality investments appraised over a long time horizon.

Concluding Comments

We are privileged to work for you and will endeavor to maintain your trust and confidence. The firm is enjoying steady growth in new accounts, most of this added business coming from client referrals. We hope you will recommend Bartlett to family, friends, and colleagues who could benefit from our investment management and financial planning services.