Cole and Houle Quoted in Bend Bulletin

Experts express optimism to investors

Advisers tell Bend clients trends from 2015 to continue

by Joseph Ditzler

For investors, this year started with more than a passing resemblance to 2015, according to executives at Portland-based investment firm Ferguson Wellman Capital Management.

At the firm’s annual investment outlook Wednesday at Deschutes Brewery, in Bend, two Ferguson Wellman vice presidents advised cautious optimism. They took their theme from the 1993 movie “Groundhog Day,” in which a TV weatherman played by Bill Murray is forced to relive the same day over and over again.

“We think this year, as we sit here in January 2016, looks a lot like January 2015,” said Ralph Cole, executive vice president of research for Ferguson Wellman.

Nonetheless, Cole and Brad Houle, a Ferguson Wellman portfolio manager and executive vice president, laid out four investor takeaways for the year.

One: Don’t change lanes, “the most important topic,” Cole said.

Like roller coasters, the bond and stock markets finished 2015 where they started. The lesson, Cole said, is don’t jump from one stock or investment class to another looking for progress. That’s advice at times hard to follow. It’s better to stick with your investment strategy and not follow the popular stock trend.

“We’ve been through these cycles before,” Cole said. “It’s the patient investor that gets paid off, especially the patient value investor.”

Two: The U.S. economy is on sound footing. “We do not believe there is going to be a recession in 2016,” Houle said.

Employment is high, wages are inching higher and household debt is shrinking, Houle and Cole said. The debt service rate, the percentage of discretionary income used to pay down debt, is 15 percent, the lowest it’s been since 1982, Houle said.

“I think consumer confidence can come from that,” he said, adding that consumer habits changed after the Great Recession. “People are using credit cards less, and the phenomenon of using a home-equity credit line as an ATM, that is also curtailed,” Houle said. “So you have a new, smarter, more durable consumer. We think this is good news.”

Three: Interest rates will creep higher. A slow pace of interest rate hikes by the Federal Reserve is linked historically to higher returns on the S&P 500, they said.

“What the Fed really wants to do here is normalize rates,” Houle said. “Eventually, there will be another recession; the Fed wants some dry powder, in order to come in (and) lower rates and stimulate the economy.”

Finally, the bull market is not over. The U.S. economy historically does well in presidential election years, Cole said. The best outcome results when leadership changes but the same party holds the White House. That outcome yielded an average increase of 21 percent in market growth based on election data from 1928 to 2015, according to Ferguson Wellman research.

Last year, falling oil prices kept corporate earnings flat, but oil has fallen about as far as it can go, Cole said.

“We think the worst is over for oil,” he said. “We’re at $27 a barrel. If this isn’t the bottom, we can see it from here.”