Weekly Commentary, 9/21/15 – 9/25/15
On Monday, the equity market tried to find its footing following a very sharp Friday pullback. resulting from a weak and indecisive message after the September Federal Open Market Committee meeting on September 17th. On Tuesday and Wednesday, the foothold slipped as investors retreated from riskier assets amid fresh anxiety over the health of China and little clarification from the Federal Reserve after keeping rates unchanged. An auction for one month U.S. Treasury Bills attracted record demand with an interest rate of zero and 10-year U.S. Treasury notes falling 9 basis points. Thursday, U.S. stocks added another 1% to the downside as investors awaited a post-close speech from Fed Chair Janet Yellen. The Chairman’s comments were an attempt to clarify the comments from her press conference following the previous week’s Federal Open Market Committee announcement. Chairman Yellen argued the case for raising short term interest rates later this year, effectively showing confidence in the American economy. From week to week, the Fed’s message seems to be different creating uncertainty. For the week, the Dow Industrials fell 0.5%, the S&P 500 lost 1.4% and the NASDAQ shed 2.9%.
With U.S. equity markets off approximately 10% from the highs established earlier in the year, is this a normal correction or the beginning of something worse? The foundation of the market, as measured by breadth, is clearly very weak. The developed markets, as measured by the MSCI EAFE Index, are off approximately 15% and the emerging markets, as measured by the MSCI Emerging Markets Index, have lost more than 25% from their respective highs. Will the current scenario play out similarly to last October, where the market dropped and rebounded, or will it turn out to be something worse? At Stadion we don’t attempt to predict the future direction of the market. We do attempt to determine how much risk currently exists in the market and adjust client portfolios with a focus on lowering volatility over a full market cycle, both bull and bear.
The Stadion Managed Account Risk objectives are managed using a “core/satellite” approach. The core positions will comprise 40-60% of the portfolio and be invested in equity, fixed income and money market instruments with the strategic allocation becoming more risk adverse as the risk tolerance of each fund changes. In allocating the objective’s satellite assets the remaining 40-60% of each portfolio, Stadion uses a proprietary, rules based weight of the evidence model. This week’s deterioration in the weight of the evidence model reversed last week’s improvement, causing us to reduce equity exposure in our satellite portfolios moving back to our most defensive risk allocation per risk objective.
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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. The MSCI EAFE (Europe, Australasia, and Far East) Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. 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.