Weekly Commentary, 8/1/16 – 8/5/16
As the dog days of August drift along, U.S. equities saw modest gains over the week as major indices continued setting new highs, with the S&P 500 Index adding +0.43% and the Dow Jones Industrial Average up +0.60%. Even greater gains occurred in the Russell 2000 Index (+0.92%) and the NASDAQ Composite (+1.14%). Even the NASDAQ—after lagging other major indices for most of 2016—finally managed to close at a record high, joining the S&P 500 and the Dow Jones in uncharted territory. For the year, the S&P 500 is up approximately +8% including dividends.
In a week of noteworthy events, perhaps most notable was the Bank of England’s announcement of a plan to cut rates after seven years of unchanged policy. The Bank also announced an increase in asset purchases as well as a new long term funding facility for banks. Citing a growth outlook that has “weakened markedly” since the United Kingdom’s vote to leave the European Union the BOE has now marked a low for interest rates in the bank’s 322-year history. The FTSE 100 Index rose +1.03% on the announcements.
In other global news, the Bank of Japan announced a disappointing stimulus package sending the Nikkei 225 index down 1.90%. Back home, U.S. employment payrolls jumped much higher than expected to 255,000 along with positive revisions to the May and June reports. The unemployment rate held steady at 4.9%.
As of now, the second quarter earnings season is virtually over and fared better than expected. According to Fact-Set, 86% of S&P 500 companies have reported earnings for the quarter and are on pace to decline -3.5%. Analysts had earlier predicted an earnings decline of -5.3%.
Technically the market’s optimism was evidenced by an encouraging rotation to cyclically exposed sectors from safe-haven groups. Financials popped +1.9%, technology rose +1.29% and biotech rose +2.74%. Defensive sectors like utilities and telecom stocks, which provide hefty dividends and are perceived as less exposed to economic contraction, generally lagged the week.
After a first half rise of +1%, the Atlanta Federal Reserve Bank is predicting that third-quarter GDP could rise 3.8%, making it more likely the Fed will raise rates as early as September. Janet Yellen will speak at the annual Jackson Hole conference on August 26 and potentially could outline a new agenda for the next rate hike. The federal-funds futures market advises a 50% probability of a year-end rate hike.
August and September are historically difficult months for the equity markets and highlight the need to stay alert to the potential need to manage risk accordingly.
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 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 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 FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. 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.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.