Central Bank Worries Won’t End Quickly

Weekly Commentary, 9/12/16 to 9/16/16

Having just come off a 43 day streak in which the S&P 500 failed to move more than 1% in any direction, the S&P 500 experienced 2 days of gains greater than +1% and one day losing -1.41% last week.  After the summer slumber it seems volatility is back.  

Despite day to day instability, the major U.S. equity indexes finished the week slightly higher.  The Dow Jones Industrial Average added +0.21% and the S&P 500 gained +0.53%. The technology heavy NASDAQ Composite Index rose +2.3% for the week.  Technology shares themselves rose +3% led by Apple which rose +11% on the week.

Monday, equities charged ahead almost +1.5% on dovish comments from Federal Reserve Governor Lael Brainard, who somewhat forcefully stated that it would be wiser for the Fed to keep monetary policy loose. Recognized as a potential future Treasury Secretary, Brainard’s remarks are closely watched. Tuesday the markets virtually erased the gains from Monday as treasury yields spiked to the highest levels since June 23.  The markets steadied on Wednesday only to move +1% to the green on Thursday led by Apple and other technology stocks.  Stocks fell slightly Friday to end the choppy week. 

Fundamental factors are not helping those policy makers who are anxious to hike rates.  Overall economic data was mixed to slightly negative for the week with 3rd quarter expected earnings having been revised lower since the end of June, following 5 consecutive quarters of declining profit growth.  

The markets suffered technical damage but managed to hold key support levels.  The S&P 500 and the Down Jones indexes continue trading below their respective 50-day moving averages.  Technology stocks have kept the NASDAQ from breaking the shorter-term trend line.   After stock prices broke downward September 9, the market has been able to make significant progress.   

Next week the Bank of Japan (BOJ) and the Federal Open Market Committee (FOMC) will have back-to-back policy meetings.  The BOJ, which has been leading the charge in central bank intervention, will announce its own assessment of the effectiveness of its monetary policy, providing clues as to what other central banks might expect in their own experience of quantitative easing.  On September 21, the FOMC will announce their much debated decision to hike rates for the second time in a decade.   

As reported in previous updates, investors continue to contemplate what the investment landscape will look like when/if global central banks begin a move to end the seven and half year experiment of quantitative easing.  The answers won’t come quickly and the solutions won’t be obvious. 

At Stadion we don’t attempt to predict where the next opportunities or risks will be, but we will follow our disciplined processes to allocate across assets with a goal of providing attractive returns across a full market cycle. 

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. The portfolios are overweight their respective 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. 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.