812-853-0878  |  800-355-9624

April 1, 2016

Dear Client:

The major market measures posted the following mixed returns for the first quarter of 2016:

Index YTD 2016
Dow Jones Industrial Average +1.49%
S&P 500 +0.77%
NASDAQ Composite -2.75%


The first quarter ended on a constructive note following some anxious volatility earlier in the quarter that saw the S&P 500 down over 10% year-to-date.  The concern seemed to center on the continuing health of the economy and whether it was beginning to slow toward a recession.

As we stated in our last quarterly letter, we have confidence in the strength of our economy and do not think a recession is likely until at least 2018.  Our optimism is based in part on the following fundamentals:

  • Private sector jobs have increased for 71 consecutive months. More jobs means more money circulating within the economy.  New claims for unemployment benefits have remained under 300,000 for 56 consecutive weeks, the longest stretch in more than forty years.
  • Incomes are increasing while consumers continue to keep their debt ratios at low levels. This leaves room for future big-ticket spending and builds consumer confidence.
  • Auto sales remain at or near record levels.
  • Housing remains a bright spot for the economy with low interest rates helping to drive demand. There is also a continuing price recovery occurring in many regions of the country and with more people working and personal incomes rising, this looks to continue.
  • Except for the energy sector, corporate profit margins are high, earnings continue to grow and balance sheets are loaded with cash which gives them flexibility to invest in greater efficiencies and make acquisitions.

At the time of our last quarterly letter, the Federal Reserve had just raised interest rates by 0.25% and the general consensus was they were likely to raise interest rates by that same amount three or four times during 2016.  As we pointed out at that time, this would only mean they would be “less accommodative.”  So far in 2016 the Fed has not raised interest rates and at their latest meeting a couple of weeks ago they indicated that their rate of increase in 2016 might be more gradual than the earlier overall market consensus due to economic conditions overseas. While some market weakness overseas is not new, the Fed’s reaction to it has been seen as a net positive by our markets.

Naturally, no market is without its worries and the Fed’s offshore concerns shine a spotlight there.  Various central banks around the world are currently working to promote business and consumer growth while staving off the possibility of deflation.  Negative interest rates (paying someone to hold your money) have turned up in some countries like Germany and Japan and have distorted the financial markets leaving some currencies less stable.  We do not expect these issues to have a significant long-term impact on our markets, but we cannot rule out a short-term or media generated reaction.

Given the market volatility we have experienced this quarter, we thought this would be an appropriate time to share with you a recent quote that has had some meaning to us:

“Volatility is the price you pay to make money as a long-term investor.”

–Brian S. Wesbury

At LYNCH & Associates we believe in long-term investment strategies.  As we have shared with you in earlier letters, market pullbacks, like we experienced earlier this quarter are a normal and healthy part of long-term investing.  If the market fundamentals are solid, it is counterproductive to react to the emotional excitement of a selloff.  They are never fun, but that “is the price you pay to make money as a long-term investor.”

For the fundamental reasons listed above, we remain confident in the long-term prospects for the equity markets.

We continue to appreciate your business and never take lightly the trust you place with us in the management of your financial assets.  As always, we welcome and encourage you to schedule an appointment to review your personal situation.




Ryan T. Lynch, CFP® ChFC®


Form ADV Part II of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics are available to all clients at any time. If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or jfarless@LNAonline.com.

Office: 10644 Newburgh Road, Newburgh, IN 47630