Weekly Commentary, 1/9/17 to 1/13/17
Equities continue their sideways consolidation, still hovering near all-time highs, as the post-election rally loses steam. For the week, the Dow Jones Index shed -0.39%. The S&P 500 Index was basically unchanged losing -0.10%. The Nasdaq Composite hit another new record adding +0.96%.
While U.S. stock prices have moved sideways for the last month after soaring following the election, interest rates have tumbled and the dollar has retreated. The yield on the U.S. benchmark 10-year Treasury note has fallen from 2.62% to 2.38%. Equity price consolidation, declining yields and a falling dollar would indicate that investors are questioning the so-called “Trump Trade.” The Trump reflation trade was predicated on Trump successfully implementing his pro-growth policies. That positive assumption is now in doubt and some are expressing concern over the likelihood of the U.S. adopting trade tariffs. Increasing tariffs could risk retaliatory measures, hurting U.S. exports and slowing growth.
On the inflation front, the U.S. Labor Department’s producer price index increased 1.6% last year. That is the biggest 12-month gain since September 2014. Increasing inflationary expectations can lead to further interest rate increases from the Federal Reserve.
Investors got a taste of what a Trump presidency could look like in terms of his impacts on market volatility. Trump’s first news conference since the election sent shivers down investors’ spines. The market dipped into negative territory during the conference. The Dow Jones swung 140 points between its high and low. Healthcare stocks took the brunt of Trumps comments when he said the drug industry was “getting away with murder” and called for “new bidding procedures”. The S&P 500 health-care sector fell -1% and the Nasdaq Biotech Index lost -3%. The dollar experienced an intraday move of 1.70% but recovered before closing down 0.25%
It is unlikely this will be Trump’s final press conference. Investors need to be prepared for other similar surprises from Trump, if not via press conferences then through speeches or tweets. At Stadion, that preparation means having a long-term horizon, a well-diversified portfolio and on-going risk management. We seek to provide strategies that will result in a smoother ride through difficult periods on the journey toward long term investment goals.
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 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. 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.