Weekly Commentary, 10/10/16 to 10/14/16
Equity markets finished lower for the second straight week. As described here last week, the price consolidation and narrowing of support and resistance levels pointed to a potential breakout soon, the only question being in which direction. Tuesday, equities stumbled 1% as disappointing earnings and continued political turmoil surrounding the upcoming presidential elections reflected a concerned electorate. The price declines were significant enough to break the narrowing range that has been developing since early September. Late-week earnings (primarily financials) gave the market a boost. The S&P 500 held, bouncing off the key 2,120 support level to close at 2,132. Over the short-term, it will be critical for the S&P 500 to hold above 2,120.
Macro issues are beginning to creep back into investor sentiment, reminiscent of earlier in the year: a rising dollar, concerns over Chinese economic growth, BREXIT uncertainty, and higher interest rates.
For the week the Dow Jones Index lost -0.56% and the S&P 500 Index shed -0.96%. Of some concern, the NASDAQ Composite and the Russell 2000 Index declined -1.48% and -1.96% respectively. The benchmark 10-year Treasury note closed the week at 1.79%, hovering near recent highs.
The shorter term Stadion trend indicators, that include measures of price, breadth and relative strength, began to identify higher risk levels in the market resulting in the reduction of risk in certain strategies.
With risk levels increasing, the investment challenge remains the same as we seek to provide growth in our client portfolios while attempting to mitigate risk.
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 40-60% remaining of each portfolio), Stadion uses a proprietary, rules-based weight-of-the-evidence model. Elevating risk levels in the market warranted the need to reduce equity ETF holdings and increase cash holdings in the flex portion of the portfolios.
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 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 U.S. 10-Year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The Sharpe ratio measures the excess return per unit of deviation, or risk. The core personal consumption expenditures index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices. 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.