Weekly Commentary, 9/26/16 to 9/30/16
The last week of the month September was relatively volatile. Notable headlines comprisedevents included the presidential debate, a full economic calendar, a tentative agreement to cut production from OPEC members and topping the week were negative reports surrounding Deutsche Bank (DB). DB’s stock and bonds have been under pressure most of the month following the a Department of Justice request for a $14B settlement over mortgage backed trading. Investors were afraid the settlement would deplete the bank’s capital. Fears intensified Thursday as Bloomberg reported that some of the bank’s clients were reducing exposure to the company threatening the bank’s liquidity sending the shares into a tailspin. At one point Thursday, the stock had fallen another 8% and was off 25% from September 9. DB shares rallied almost 15% on Friday after a media report that the bank would settle with the DOJ for a mere $5.4B. The stock remains off over 40% year-to-date and 75% from its 2014 high. Many believe the challenges facing DB are unique to the bank and not plaguing reflective of all European financial institutions. For others, the bank’s problems are reminiscent of the weeks leading up to the collapse of Lehman Brothers. Investors are left to wonder if the pressure on DB might spill over to other European financial institutions leading to economic uncertainty and potential global contagion.
Stocks prices rose on Wednesday when major oil producing nations agreed on a tentative deal to cut production. Oil prices climbed over 7% on the week.
The major U.S. equity indexes followed the travails of DB Thursday and Friday and managed to close slightly positive for the week. The German DAX lost -1.09% and the Europe Stoxx 600 declined -0.70%. Yields on U.S. treasury 10-year notes spiked to 1.61% from 1.55% on the DB speculation.
The market technicals held up well during the volatile week. 46 of the S&P 500 stocks set new highs versus only 4 stocks setting new lows. The advance-decline line rose on the week approaching all-time highs. 76% of S&P 500 stocks are trading above their 200-day moving average. The S&P 500 is currently sitting on at its 50-day moving average after consolidating from the recent September 8th lows.
Economic releases were positive and supportive of the ng a potential for a rate hike in December. Consumer confidence rose in September for the first time in four months. The core personal expenditures (PCE) deflator rose 0.18% in August, taking the year-ago increase to 1.7% approaching the Federal Reserve’s 2% target.
With Tthe books are now closed for the month of September, it’s. safe to say that September did not live up to its reputation of being a highly volatile month. That doesn’t mean we can become complacent. Global uncertainties abound including fallout from the DB crisis and Brexit. Domestically we face the second potential rate increase and as well as the presidential elections. We believe our portfolios are properly positioned for the current levels of risk in the market and will adjust allocations as conditions warrant.
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 DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. 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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. 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 Nikkei 225 is a price-weighted stock market index for the Tokyo Stock Exchange and is the most widely quoted average of Japanese equities. The EURO STOXX 600 Index represents large, mid and small capitalization companies across 18 countries of the European region. 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.