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Janet Visits Harvard

Weekly Commentary, 5/23/16 – 5/27/16

U.S. stocks closed the week on a high note.  The Nasdaq Composite and the Russell 2000 Index led the charge, each gaining 3.4%.  The Dow Jones Industrial Average and the S&P 500 Index each rose approximately 2%.  Excluding dividends, the S&P 500 is now up 2.70% year-to-date.

The market pushed higher early in the week with strong tailwinds.  A combination of rising oil prices, and improving U.S. economic data releases (durable goods, new home sales, GDP and jobless claims) had some investors rethinking their predictions for a U.S. economic slowdown.  Two macro events also seemed to ease investor worries. Eurozone finance ministers and the International Monetary Fund reached a deal Wednesday that cleared the way for fresh loans to Greece to prevent the country from defaulting on debt maturing in July.  And maybe more importantly is the apparent stability in the Chinese currency market.   Evidence was accumulating for a repeat of August 2015.  At that time, better U.S. economic data, hawkish rhetoric from Federal Reserve officials, and a slowing Chinese economy led to devaluation of the Chinese Renminbi and with it a spike in global equity volatility.  The Renminbi is currently weakening but in an orderly fashion and the People’s Bank of China is emphasizing currency stability, at least for the time being. 

The real fireworks hit Friday afternoon before a long holiday weekend.  At Harvard University, Federal Reserve Chair Janet Yellen confirmed what many central-bank officials have recently been saying: another increase in the Fed’s key interest-rate target is coming in the months ahead.  She said “it’s appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months such a move would be appropriate.”  Traders and investors interpreted this to mean that if the Fed wants to raise rates the economy must be doing well therefore stocks should do well. 

From a technical perspective, all four of the major averages are now trading back above their respective 50 and 200-day moving averages.  In addition, all of the moving averages  have recently produced a golden cross (50-day moving average crosses above the 200-day moving average) and are now in what many technical analysts believe is the required range for a valid bull market.  Market breadth continued to expand with the S&P 500 advance-decline line rising to an all-time high.

Last week’s update mentioned that the market’s positive fundamentals were not being confirmed by the market technicals and the dichotomy would correct itself over time.  This week’s positive improvement in the market’s price and breadth measures would suggest the market is now in a position to move higher. However, the S&P 500 is 1.5% from the all-time high of 2135 established in May 2015.  The S&P 500 has unsuccessfully attempted to pierce this level numerous times and it remains to be seen whether it will present significant resistance this time.  It will be interesting to see how the scenario unfolds as we move into what is often considered a soft period for the markets.

We believe our strategies are properly positioned for the current levels of risk in the markets and will continue to follow our various processes and adjust allocations as needed. 

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 Flex portion of the portfolios is in a transition zone. The portfolios are overweight 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 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. 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.

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Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.