Weekly Commentary, 3/21/16 – 3/25/16
U.S stocks slid slightly ending five consecutive weekly gains in a holiday shortened week punctuated by Tuesday’s terrorist attack in Brussels. This meant the year-to-date S&P 500 Index eased back into negative territory down -0.4%. For the week, small caps reeling from selling pressure in the energy sector sent the Russell 2000 Index down -2.0%. Meanwhile, the Dow Jones Industrial Index fell
-0.49% and the S&P 500 Index -0.67% as large-caps showed some resilience despite heightened geopolitical tension following tragic incidents in Brussels and elsewhere.
The principal economic headline for the week may be a more “hawkish” tone from Federal Reserve comments dissimilar in nature from the Chairwoman’s press conference one week earlier. Federal Reserve Bank of St. Louis President, James Bullard, said that “the next rate increase may not be far off provided that the economy evolves as expected.” Hinting that the Federal Reserve could raise rates sooner than expected fueled a 1.40% gain in the dollar potentially hurting U.S. company exports and earnings.
U.S oil prices also snapped a five week winning streak. The price of crude oil fell -3.7% as data showed U.S supplies reaching an all-time high and a strengthening dollar.
Dimming expectations of the recent forceful rally in stocks—up 11% since February 11th— U.S. corporate earnings have declined in recent quarters and analysts are now forecasting declines in first-quarter profits. One predicts an -8.1% decline in first-quarter profits for S&P 500 Index companies from a year earlier, in sharp contrast to the +0.9% increase forecast at the end of last year, according to FactSet. Granted, much of the shortfall arises from the energy sector.
Given the magnitude of the market’s rally since February 11, it’s not surprising to enter a period of consolidation. In October 2015 the market experienced a similar rally, when the S&P 500 Index rose briefly above 2100 before quickly reversing -4% and eventually dropping another -9% by February 11. The most recent rally has been broader and included small and mid-cap stocks, which is encouraging. The next tests of resistance for the markets (with the S&P 500 as proxy) will be overhead resistance at 2050 and 2100. We don’t know if the current market will be a replay of last October to December or if it will finally break out to new highs.
In any event, we believe our strategies are properly positioned for the current risk levels in the market. We will continue to monitor and adjust our holdings as conditions warrant, with a goal of protecting investor assets.
The Stadion Managed Account 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. The portfolios currently maintain benchmark allocations per risk objective.
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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. 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.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.