2016 Quarter 1 Newsletter
FIRST QUARTER 2016 NEWSLETTER
As we prepare this newsletter what was expected to be a light dusting of snow over Southern Maine early this morning has turned into 2 inches of accumulation in Portland. Just yesterday songbirds and the most daring spring flowers were enjoying temperatures in the 60s. Our weather since the beginning of 2016 has been as unpredictable as the financial markets. Yet, while April has earned its reputation as The Cruelest Month in the weather department, our financial markets have continued the uptrend with which we finished the first quarter.
As April winds down we continue to watch first quarter earnings reports. Most S&P companies who have reported so far have exceeded profit estimates. However, they have exceeded a low bar, since profit expectations for the first quarter were very low compared to last year. The firm, Thomson Reuters, estimates an earnings decline year over year of 7.2% by the time all companies have reported. This outlook compares with a forecast of a positive 2.3% back in January 1st.
All 10 sectors of the S&P have been downgraded since the first of the quarter, with energy and materials most heavily hit. Many analysts are forecasting that energy and a weak dollar will create headwinds all year. So does this mean we are in for more stormy weather in the financial markets? Thomson Reuters is expecting a modest drop in year over year earnings for the 2nd quarter, around 2.6% lower, but it sees the 3rd quarter reversing the trend and turning in a 4.3% growth rate.
The Fed is expected to continue what seems to be a very cautious approach to raising rates. While the Fed is expected to hold rates steady for now, their comments at this week’s meeting may give us a sense of whether or not a modest increase is planned for June. Two major worries for consumers over the past few years have been increases in energy and housing. The drop in gas and oil prices which we’ve enjoyed over the last year or so has helped increase consumer discretionary funds, but studies indicate most people are saving the extra money or committing it to debt reduction.
Rental costs are still rising in the U.S. more than inflation. As pent up demand for homes and historically low mortgage rates have created a strong real estate market, many landlords are tempted to cash in on what may be a market peak and sell their properties. This further strains the inventory for leases, driving up rental costs. At the same time, many potential home buyers are not yet able to secure a mortgage. Others are downsizing and simplifying their lives, and just prefer to lease. While the rental market remains tight, building of multiunit dwellings is increasing. Many cities are working on programs to encourage growth of available rental properties. Eventually supply should catch up with demand. In fact, several recent studies indicate that the trend of rising rental costs may be moderating.
All in all, the economy in the U.S. may well be able to plow slowly ahead in spite of patches of stormy weather, and the markets may turn in another moderately positive year in the end. We are paying close attention to what is happening now and prepared for the unexpected events the rest of the year may bring our way. Even April SNOW showers can bring us bouquets of flowers in the coming months.
On a personal note, we want to share with you some news about which we are excited. Our office lease expires in mid-summer; it’s hard to believe we have been here for 3 years already. Given that the housing market is hot in the Portland area currently, our landlord has some options to consider, one of which is to sell some of his properties. Planning ahead, we have been giving thought to purchasing or building space which would give The Galarneau Group a permanent home. This is something we had imagined we might do in a year or two; but the opportunity to build our own office may arrive soon.
We want you to know that if we do change locations, we will make it a seamless transition for our clients. We will keep you in the loop as plans continue to develop. And we will determine a location and create a design which puts your comfort and convenience front and center. Stay tuned for more developments.
Preston and Debbie head to Italy in just about a month, for a 2 week trip. It’s been planned well in advance and Katie will be taking care of things at the office and keeping in touch with us. We would love to hear from you either before the end of May, or after our return June 14th to talk about your account, your goals, your “wish list” for office amenities should we move, or whatever else may be on your mind. Enjoy the rest of Spring!
We remain thankful for your business and friendship, and committed to putting you first.
Warmly;
Debbie, Preston, and Katie
