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A Market on the Edge?

Weekly Commentary, 6/6/16 – 6/10/16

U.S. equity markets started the week on a strong note before trading lower as the week wore on, giving up most gains by Friday. The Dow Jones Industrial Average managed to a 0.33% rise. The S&P 500 Index closed down -0.15% and the NASDAQ Composite was the big loser on the week shedding -0.97%.  

Monday, Federal Reserve Chair Janet Yellen reassured investors by insinuating the central bank won’t be raising short-term interest rates at next week’s meeting of the Federal Open Market Committee. In a carefully worded statement she said, “new questions about the economic outlook have been raised by recent labor market data.” This represents a major shift from recent comments that short-term rates would be rising in the coming months.  Investors and traders used this new information to send the major indexes back toward previous all-time highs.

What may have been a bigger story this week than stocks was the move in global interest rates. Combined with the comments from the Federal Reserve and pleas from Mario Draghi, the President of the European Central Bank (ECB), for governments to step in and rescue the Eurozone, yields on global debt sank, many further into negative territory. The Japanese 10-year fell approximately 5 basis points to -0.17%. German 10-year debt declined approximately 4 basis points to 0.03% and U.S. 10-year yields dropped 8 basis points to 1.64%.

Plunging bond rates are not a vote of confidence for the global economy, and with the looming U.K. referendum on maintaining membership in the European Union, weighed heavily on U.S. share prices Friday. The S&P 500 Index lost -0.92% closing at 2096 and the Dow Jones shed -0.67% to finish the week at 17,865.

As we’ve previously reported, the S&P 500 and the Dow Jones are facing significant resistance levels at 2100 and 18,000 respectively. There will likely be more failed attempts before the markets can break through to new highs. Two painful corrections in the past year are still fresh in investors’ memories and suggest further upside progress will not come without a struggle. The VIX, as a measure of volatility, is at its highest point in over three months which could foreshadow an upcoming rocky period.  

Warnings and difficulties aside, U.S. equity markets continue to trade near all-time highs. The most recent price action and consolidation begs the question: In what direction will the next major move take the market?

The Stadion Managed Accounts risk objectives are managed using a “core/satellite (Flex)” approach. The core positions will comprise 40-60% of the portfolio and are invested in equity, fixed income and money market instruments with the strategic allocation becoming more risk averse as the risk tolerance of each fund changes. In allocating the objective’s Flex assets (the remaining 40-60% of each portfolio), Stadion uses a proprietary, rules-based weight-of-the-evidence model. With the recent improvement in the weight-of-the-evidence model, the Flex portion of the portfolios remains fully invested. The portfolios are overweight benchmark equity allocation at this time. 

 


Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. The investment strategies presented are not appropriate for every investor and financial advisors should review the terms and conditions and risks involved. Stadion’s actively managed portfolios may underperform during bull markets. Some information contained herein was prepared by or obtained from sources that Stadion believes to be reliable. There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. Any market prices are only indications of market values and are subject to change. The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock price. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The VIX is the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. The Sharpe ratio measures the excess return per unit of deviation, or risk. Any references to specific securities or market indexes are for informational purposes only. They are not intended as specific investment advice and should not be relied on for making investment decisions.

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Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.