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Risk On

Weekly Commentary, 10/5/15 – 10/9/15

Last week could turn out to be a very important one.  Stocks finished the week with major indexes rising more than 3%.  Riskier assets, such as small caps and emerging market equities, experienced even larger gains.  Stock opened the week lower testing the August lows.  The Russell 2000 actually traded below the August low but closed well above it by Friday.  That is normally taken as a bullish event and reinforces the formation of a double bottom event mentioned last week.  Fundamentally, the bulls had reason to participate derived from Thursday’s release of dovish minutes from the latest Federal Open Market Committee meeting, as well as a weaker than expected jobs report, both of which seemingly pushed back an imminent rate hike from the Federal Reserve.  Two weeks ago the market was unnerved by the delayed rate hike, thinking the U.S. economy was too unstable to withstand a 25 basis point increase in interest rates.  In the markets, perception becomes reality, and the most recent reality is “risk on”.

The technical damage done to the market has not yet been repaired.  Former support levels such as the 50-day and 200-day moving averages will now become resistance levels with the popular press.  From the fundamental side, the market will take its cue from the upcoming earnings season and listening to corporate executives discuss the outlook for their companies.

The “risk on” environment this week was strong enough to engage our models and we began adding risk to our portfolios.  If the rally continues, we have room to add more risk, but should the market perception change in the weeks ahead we always maintain the ability to move to the sidelines to protect against losses.  At Stadion, we believe incorporating a tactical strategy can improve risk adjusted returns over a full market cycle.

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.   As the market moved higher through the week we saw improvement in our weight of the evidence indicators and we therefore began to add equity positions to portfolios per risk objective.  The recent strength has also been supported by our internal relative strength measures.  When the riskier or more speculative indices like the Russell 2000 or emerging markets lead higher, we generally view this as positive support of the potential uptrend. 

 


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 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. 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.

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Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.