News and Views from the SFP Investment Team

Congratulations to Shepherd Financial Partners Managing Director, Gita Rao, upon publication of her article in The Atlantic’s digital magazine Quartz entitled “To Remain a Superpower, the U.S. Must Become Inclusive and Generous”.
In the article, Gita and co-author Bhaskar Chakravorti comment upon Ian Bremmer’s new book, Superpower, and propose a fourth alternative for the U.S. to retain its role as a superpower, that of Inclusive America.
As Gita tells us, “U.S. companies, its intellectual sector and its investors along with its public policy would all have roles to play in creating an Inclusive America.” Read the article here: http://qz.com/451932/to-remain-a-superpower-the-us-must-become-inclusive-and-generous/.

Shepherd Financial Partners Second Quarter 2015 Investment Overview

The Standard and Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Past performance is no guarantee of future results. The daily high and low values of the S&P500 are represented in the chart above as the vertical pink and blue lines. Moving Average Lines by color(days): Red(11), Black (200), Green (150,) Blue (50).

While Q2 returns for the S&P 500 were a modest 0.3%, the quarter marked the 10th consecutive positive return for the index. This streak is the longest consecutive string of positive quarterly returns since the fourteen quarter run which ended in 1988. Economic data received in the quarter confirmed that the combined effects of the harsh winter, the collapse in oil prices, and the West Coast port strike had a negative impact on the US economy resulting in Q1 GDP declining by 0.2%. However, it does appear that these factors were indeed temporary, as improvements inhousing growth data, stronger corporate profits (ex Energy), and the effect of lower oil prices for consumers have lead to a reacceleration in second quarter GDP forecasts.

Performance for US stocks was generally mixed with Health Care and Financials leading and Energy, Industrials, and Utilities lagging. Health Care continues to be the top performing US sector due to the continued surge in biotechnology stocks and an elevated level of M&A activity. Utilities once again led decliners due to continued signals by the Fed that a September interest rate hike is the current plan. Throughout the quarter, the 10-year Treasury yield rose from 1.9% to 2.5% on June 10th, before ending at 2.35%. By market cap and style, smaller stocks beat large caps, and growth outperformed value.

International markets experienced the headwinds of a slowdown in China and the prospects of a Greek default. Despite these headwinds, returns were generally positive with the MSCI EAFE Index gaining 0.6%, driven by strong gains in Hong Kong and Japan, which increased 5.6% and 3.1% respectively. Within the EAFA Index, the strongest gains were from small cap stocks. Strong performance from small caps is usually an indicator that market sentiment is favorable to investors taking on more risk. And while the situation in Greece remains highly fluid, as of the writing of this letter, it appears that the problem has been once again “kicked down the road”. For now, Greece has temporarily averted an imminent default scenario.

First quarter S&P 500 earnings growth came in at just 0.8%, the lowest level in two years. However, the 0.8% increase substantially beat Fact set’s earnings estimate of a 4.7% decline. Consensus forward earnings estimates for 2015 are $119, which represents just 1% growth. Estimates for 2016 of $134 represent an acceleration of growth to 13%. Valuations are stretched, but not anywhere near bubble territory. The forward P/E (S&P price/next 12 months earnings) is currently 16.8x, as compared to the 5-, 10-, and 15- year P/E averages of 13.6x, 14.1x, and 16.0x respectively.

At Shepherd Financial Partners, we firmly adhere to the philosophy of sound asset allocation strategies and disciplined investment. We continuously monitor the risks associated with various asset classes and make tactical adjustments to our clients’ portfolios so that they may realize the benefits of a properly constructed diversified portfolio with the lowest risk-adjusted profile possible.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forthin the presentation may not develop as predicted. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

No strategy assures success or protects against loss. Investing involves risk including potential loss of principal.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The prices of small cap stocks are generally more volatile than large cap stocks.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.