Weekly Commentary, 4/25/16 – 4/29/16
On the macro side the major focus for the week was Wednesday’s Federal Open Market Committee (FOMC) meeting and the Bank of Japan meeting on Thursday morning. One fizzled and one provided fireworks.
Shocking no one, the Federal Reserve maintained overnight rates at current levels. In March, the FOMC implicitly confirmed that it had dialed back expectations for four quarter-point rate hikes this year to just two, citing risks in global economies and financial markets.
The Bank of Japan surprised the world by failing to come through with further stimulus measures, such as pushing its policy rates further into negative territory which quickly sent the yen up and Japanese stocks down. Japan, the world’s third largest economy, introduced sub-zero rates in January to spur economic activity and price growth. The central bank’s inaction comes despite a further deterioration in Japan’s economic landscape since the previous policy meeting in March. Japan’s economy is at risk of shrinking in the current quarter because of earthquakes that hit the nation earlier in the month.
The Japanese Nikkei 225 index sank 5%.
The micro side was active as well. More than 60% of the companies in the S&P 500 index have reported first-quarter results, and growth remains problematic. According to Zacks Investment Research, results aren’t as bas bad as expected, but earnings are down 5.5% from the year-ago period, and revenue is 1.6% lower. The blended picture combining actual numbers with estimated results shows total earnings declining 8% on 1% lower sales. This would mark the fourth quarter in a row of declining earnings. The world’s largest stock, Apple, led technology stocks lower, dropping 11% after reporting disappointing earnings.
Longer term price action remains positive. The S&P 500 index was unsuccessful in piercing the 2100 level but held above the April lows. The S&P 500 and the Dow Jones indices 50-day moving averages move back above their 200-day moving averages (golden cross). However, shorter term price measures are showing slight weakness. At the same time, longer term price and breadth measures are improving.
The markets have stalled again unable to set new highs. A catalyst will probably be needed for the market to break out of the current range. One of Wall Street’s favorite adages is “sell in May and go away”. It’s a controversial strategy. Some years it works and some years it doesn’t. The summer will have some potentially market-moving events. The next FOMC meeting is in June and eight days later the UK votes on exiting the European Union. Negotiations between Greece and its international creditors resume over the summer.
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 are currently slightly overweight 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 Nikkei 225 is a price-weighted stock market index for the Tokyo Stock Exchange and is the most widely quoted average of Japanese equities. 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.