Weekly Commentary, 5/30/16 – 6/3/16
For the week, stocks were mixed and performance muted. The Dow Jones Industrial Average finished lower by -0.37%. The S&P 500 Index closed virtually unchanged from the previous week at 2099, flirting with key resistance at 2100. The Russell 2000 Index, a basket of small cap stocks, gained 1.19%.
Friday’s monthly non-farm payrolls release shocked most market prognosticators by only adding 38,000 jobs in May. Most forecasters expected closer to 150,000 new jobs. The prior two months’ total was retroactively reduced by approximately 59,000. Unemployment fell to 4.7% from 5% in April. The drop resulted from 664,000 people leaving the workforce last month.
Based on this news, the markets dialed back the probabilities of a near term hike in interest rates. Fed Funds futures, used by investors to gauge U.S. central bank polices, showed the odds of a rate increase at the Federal Reserve’s June meeting were down to 4% from 21% before the jobs report. The same futures contracts now suggest a 31% chance of an increase by July down from 58% before the release.
The yield on the two-year Treasury note, which is more sensitive to changes in monetary policy than longer dated debt, fell to 0.79% from 0.89% on Thursday. The yield on ten-year Treasury’s fell to 1.71% from 1.81% on Thursday.
The Dollar Index declined 1.68%. A weaker dollar has provided support to the markets since the February recovery. A weaker dollar also supports Gold. Gold rallied 2.50%, anticipating rates staying low longer.
As measured by price and breadth, the market technicals remain positive. However, 2100 on the S&P 500 Index will be a key level to watch. It represents the highs established in April and November. Clearing 2100 may present a struggle for the market. Above 2100 is the all-time high of 2135 established in May 2015.
From a fundamental standpoint, the S&P 500 Index is trading at 17x earnings, the upper end of the 2016 Earnings Per Share of $121-$123. The 17 multiple drops to 16 on the $130 forecast for 2017. For these reasons 2100 is also a critical level.
Yet to be resolved on the near term horizon:
We will remain patient and monitor risk levels and asset allocations as market events unfold.
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. With the recent improvement in the weight-of-the-evidence model, the Flex portion of the portfolios is now fully invested. 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 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.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.