Weekly Commentary, 2/29/16 – 3/4/16
It appears, for now, that the “Bulls” have temporarily bested the “Bears” at the battle waged over the 1950 point level of the S&P 500 Index. The stock market ended higher for the third straight week. The major averages are up nearly 10% from February lows, closing just over 17,000 for the Dow Jones Industrial Average and just under 2000 for the S&P 500. International markets also participated as Japan soared +5.2%, Hong Kong +4.2%, China +3.9% and Germany +3.3%.
What a difference three weeks can make. In early February the stock market seemed to be in freefall. The question for many was whether a full-blown bear market loomed. Now, those fears have diminished as U.S. economic data came in stronger than expected, oil prices stabilized, and concerns about China diminished. Technically-speaking the market’s fundamentals have improved. Market breadth has expanded, bearish sentiment has waned, and small cap stocks have rallied bringing a rotation from defensive plays to growth stocks and the emerging markets. The S&P 500 is now just 2.15% below its 2015 close.
But new-found footing is often unsteady. The dark side to improving U.S. economic data is increased potential that the Federal Reserve might raise interest rates. Beaten down stocks leading the market higher could indicate bargain hunting as well as covering short-sale bets, implying this could be just a bear market rally. Additionally, the stability of the European Union may be questionable as Britain prepares to vote on whether to stay or go. Chinese economic weakness will likely persist along with policy uncertainty. Historical valuations remain high. The S&P 500 is trading at 17.5 times its past 12 months of earnings, well above its 10 year average, according to FactSet.
Time will reveal whether this turns out to be a short lived bear market rally or the start of a renewed bull rise. The current upward momentum might indeed imply reduced market risk but we believe prudence suggests vigilance to guard against overconfidence or complacency.
The Stadion Managed Account 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. Continuing from last week’s improvement in our risk measures, broad equity exposure was added to the portfolios bringing them up to benchmark 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 Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. 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 Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index in Hong Kong that is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the market's overall performance. The Shanghai Stock Exchange Composite (SHCOMP) Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. 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.