Our outlook for 2016 remains mildly bullish, as we are encouraged by the improved market technicals and renewed credit market confidence. We remain more optimistic about international markets, which have undergone a full blown bear market since 2014.
Now, however, the market bottom on February 11th looked to have been capitulative among international equities. International equity valuations are compelling, and international equities, particularly emerging markets (which are attractively valued on a relative basis) are beginning to display relative strength.
While the 2016 elections will probably lead to some short-term volatility, we believe that the most likely market direction after the election will be upwards as uncertainty will finally be resolved.
High Dividend Equity
One of the biggest contributors to market performance this year continues to be historically low interest rates. The result has been positioning across fixed income markets and equity sectors in an effort to benefit from the current environment.
In the first half of 2016, the “bond proxy” sectors such as Telecom and Utilities dramatically outperformed the S&P 500 Index until the 10 year Treasury hit a low of 1.36% in July. Since the July 8th low, the subsequent rise in yields combined with Federal Reserve comments about a possible December rate hike propelled investors out of bond proxy sectors into more growth-oriented sectors such as Technology.
Historically “dividend growth” companies demonstrating earnings growth, strong free cash flow and rising dividends are resilient in a rising interest rate scenario.
Numerous studies point to the last eight Fed fund hikes where “dividend growers” experience strong performance compared to dividend non-payers, cutters and companies that don’t consistently increase their dividend.
The U.S. bull market continues to forge ahead looking beyond the negative S&P 500 earnings projection for this quarter of -1.1% which would be the sixth negative quarter in a row. In the fourth quarter, greater stability in the dollar and oil prices should help corporate earnings beat lowered expectations.
This quarter we noted a slower pace of several shareholder friendly policies such as share buybacks and dividend growth rates. Despite the shift away from share buybacks, the Materials, Industrials, Financials, Technology and Energy sectors are projected to accelerate their dividend growth along with stronger growth prospects with improving revenues.
Sean Clark is the Chief Investment Officer at Clark Capital Management, which is a participant in the ETF Strategist Channel
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Past performance is not indicative of future results. This is not a recommendation to buy or sell a particular security. Please see attached disclosures.
The opinions expressed are those of the Clark Capital Management Group Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There are no guarantee of the future performance of any Clark Capital Investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The Investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
The Dow Jones Industrial Average is a stock market index that shows how 30 large publicly owned companies based in the U.S. have traded during a standard trading session in the stock market.
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The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices and which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk. The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities. The Barclays Capital U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S. The Barclays Capital Aggregate Bond Index is an intermediate term index.
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