FOMC: The Interest Rate Clock is Ticking

Weekly Commentary, 8/15/16 - 8/19/16

For the week, U.S. stocks traded in a narrow range hovering near all-time highs.  It was another low volume summer week as investors seemed to enjoy the last of summer holidays.  Mixed signals followed the July Federal Open Market Committee (FOMC) meeting.  

Stock prices initially rose when Wednesday’s release of the minutes from the July 26-27 FOMC meeting were interpreted as dovish.   “Members judged it appropriate to continue to leave their policy options open and maintain flexibility to adjust the stance of policy based on incoming information,” suggesting the Federal Reserve was not in a rush to raise rates.  Sentiment began changing on Thursday and Friday with comments from Fed Presidents Williams and Dudley hinting rates could be rising sooner than later.  The yield on the benchmark 10-yr U.S. Treasury note rose from 1.51% to 1.57%.  The contrasting minutes and comments from Fed officials show that the FOMC is divided into three camps; those who would forestall rate increases, those who are ready now, and those who feel the probability is near but not here.  The financial markets would much prefer a more consistent message from the Fed.   

Janet Yellen’s speech next week at the Jackson Hole annual monetary conference will be closely scrutinized for hints of the Fed’s timing on the next move upward in rates.  The September and December meetings are likely candidates for the news. November is an unlikely option given the announcement would come six days ahead of the presidential election and could potentially add volatility around what might be an already volatile trading environment.   

According to FactSet, 95% of companies in the S&P 500 have reported second quarter results.  Based on those results, S&P 500 earnings are on track to have contracted 3.2% for the fifth consecutive quarter with a decrease, though analysts had feared worse.  Fundamental analysts continue to grapple with S&P 500 trading at 18 times earnings per share with earnings having contracted for the last five quarters and mediocre GDP growth. 

Technically the market remains robust albeit with anemic volume.  The commodity market has shown signs of strength which is supportive of economic fundamentals.   Oil prices extended their gains rallying 9% on the week.  WTI Crude has surged over 20% since the August lows with talks of a production freeze from the Organization of Petroleum Exporting Countries (OPEC).  OPEC members are scheduled to meet informally in September.  The encouraging rotation theme from the defensive sectors to the more cyclically exposed sectors continues. 

The S&P 500 has been trading in the narrow range of 2150 to 2190 for the last month since breaking out to new highs earlier in the summer.  U.S. equity markets are in a period of consolidation after reaching all-time highs.  Meanwhile, Stadion believes its tactical strategies are positioned to take advantage of continued market improvement , though eyeing the markets via the lens of a disciplined risk management process should conditions change.   

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. 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.