Weekly Commentary, 8/22/16 - 8/26/16
Stocks closed the week lower and the U.S. dollar rose on Friday as investors considered the timing of the next interest rate hike from the Federal Reserve.
Janet Yellen ended two months of public silence Friday at the much awaited annual monetary conference in Jackson Hole. The Federal Reserve Chairwoman indicated the central bank was close to raising short-term interest rates. She said: “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” These comments signal a possible rate hike announcement at the September Federal Open Market Committee (FOMC) meeting. However, in her prepared remarks she also warned that “the economic outlook is uncertain” hinting yet againthat the Fed’s monetary policy is not “on a preset course” and is dependent on economic activity and inflation.
According to fed-funds futures, the probability of a quarter point rate hike at the September FOMC meeting is now 42%, twice what it was in the prior week. The probability of a hike at the December meeting continues to hover around 62%.
Next week should be another interesting one, with Friday being the key trading day. The August non-farm payroll report, scheduled to be released then, will be an important factor in the Fed’s decision making process. Consensus among forecasters is that the economy added another 200,000 non-farm jobs.
For the week, the Dow Jones Industrial Average lost -0.85%. The S&P 500 Index shed -0.68%. Sectors impacted by potentially rising rates included utilities shedding - 2.1% while the S&P Bank Index rose 1%. The yield on the 10-year benchmark U.S. Treasury note rose from 1.56% to 1.63%. The Dollar index rose 1.05% for the week after surging 0.77% on Friday.
There were no major fundamental or technical changes to the market over the week. The market remains mired in the lower end of its multi-month trading range awaiting the next catalyst to push the market to a new high or enter a period of correction. Historically, September can be volatile. The recent market complacency will end at some point, perhaps revealing the importance of having a disciplined investment process to protect client assets.
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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The S&P Bank Index comprises stocks in the S&P Total Market Index that are classified in the GICS asset management & custody banks, diversified banks, regional banks, other diversified financial services and thrifts & mortgage finance sub-industries. The S&P 500® Utilities Index comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector, which generally includes stocks for utilities such as gas and power. The U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. The US Dollar Index is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners' currencies. 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.