Weekly Commentary, 3/14/16 – 3/18/16
The major indexes moved into the black for the first time this year. After a poor start to the week, dovish comments from the Federal Reserve on Wednesday drove equities more than 1% higher. Rising oil prices again added fuel to this fifth consecutive weekly rally. Federal Open Market Committee (FOMC) projections suggested it would raise rates just twice this year instead of the previously expected four hikes. The Federal Reserve’s policy statement highlighting continued risk in “global economic and financial developments” is seen as focusing more on risk outside the U.S., meaning it will do its best to keep the dollar stable. The U.S. Dollar index lost 1.25% and Oil rose 2% to $39.44 per barrel, both of which have added to the easing of fears about a global recession.
The net result is that the Fed took pressure off risk assets last week. From an overall return perspective large-caps led the rally last week with the Dow Jones index advancing 2.3% while the S&P 500 index rose 1.3. Small cap stocks, as measured by the Russell 2000, also had another strong week climbing 1.3%. Treasuries rallied with the benchmark treasury closing Friday at 1.87%, down from 1.99%, just before the release of the Fed’s statement.
Now that commodity prices and formerly beaten down stocks have rebounded and erased the 10%-plus correction, the question is: Is this more than a snap-back reaction? The market’s valuation, at 17 times consensus analyst earnings-per-share estimates for 2016, looks stretched again. Central banks are either in full-tilt easing mode or in the case of the Fed holding back on rate hikes. Will that worldwide easing keep the rebound going?
The market has had an impressive rally from the February 11 lows and now appears overbought on a technical basis. The S&P 500 Index and the Dow Jones index have cleared their 50 and 200-day moving averages. The S&P 500 is closing in on its next level of overhead resistance at 2050. A close above this level sets the stage for a possible test of the 2015 highs near 2135 which proved to be a hard ceiling as it was tested multiple times in the past.
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.