March 2010 Market Commentary
March 10, 2010
By Will McGough
How Quickly Things Can Change
Entering February, bearish sentiment was on the rise. Concerns over sovereign risk (foreign debt failure) coupled with domestic fears about financial regulation and changes in fiscal/monetary policy threatened the 10 month recovery already under way. This fear and uncertainty spilled over into the first week of February. After a short-lived waterfall decline a recovery late in the session on Friday 2/5 marked the short-term bottom of the recent bearishness. The good news is that the tactical component of Stadion portfolios mitigated this risk.
Because the equity markets are a forward discounting machine, we saw a dramatic equity market rally in the face of economic turmoil over the past year. Short term, this discounting mechanism can cause major frustration. The average investor is often affected emotionally by short term gyrations as the investment "crowd" moves in one direction, and the market in another. During February we saw heavy bearish sentiment readings from surveys such as Investor's Intelligence and American Association of Individual Investors.
While these two surveys were bearish, the 'investor sentiment' component of Stadion's active investment model countered by suggesting a new positive trend might be developing in mid-February. From that point, as the equity markets put fears aside, market internals and price action started to slowly improve on footing created during the week-one February declines. As the weight of the evidence continued to point toward a productive market environment we closed the month anticipating gaining tactical equity exposure the first week of March. As of today, all Stadion portfolios will have full equity exposure per risk tolerance constraints.
Stadion's approach to balancing safety and return has served us well over time. While many track the market's performance through indexes like the S&P 500 or the Dow, Stadion assesses it via proprietary technical indicators. These indicators have proven remarkably adept at helping us capture most of the good times and miss most of the bad. But there is no perfect investment model. Periodic underperformance can occur. We view that as an acceptable trade-off for the comfort gained from our low-volatility investment model. February was a prime example of following the model with discipline: risk levels did not warrant equity exposure during the month, so despite positive performance in equity indices, we prudently waited for our model to signal risk had abated before taking on equity exposure.
We continue to appreciate your confidence while we manage your money just as we manage our own.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money. Investment return and principal value of an investment will fluctuate so that an investor's portfolio may be worth more or less than their original investment. The investment strategy presented is not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Stadion's actively managed portfolios may underperform during bull markets.