Weekly Commentary, 5/2/16 – 5/6/16
Major U.S. stock indexes slipped fractionally this week in response to underwhelming quarterly earnings reports and disappointing economic data. Large cap stocks handled the selling pressure relatively better than small cap stocks. The S&P 500 Index lost 0.40%, the Dow Jones Index lost 0.19% and the Russell 2000 small cap index lost 1.48%. U.S. stocks have struggled the last three weeks and are off approximately 2.50% from the recent S&P 500 Index high of 2111.
The Labor Department reported Friday that nonfarm payrolls rose 160,000 last month, below expectations of 205,000 additions and the lowest number of jobs added in seven months. The unemployment rate held steady at 5%. With first-quarter results in from 87% of the companies in the S&P 500, the earnings decline is expected to be 7.1%, according to FactSet. Now that the reporting season is just about done, investors will turn their focus to the June 15-16 Federal Open Market Committee meeting. The latest weak nonfarm payroll number most likely removes a rate hike at the June meeting. Market analysts will be parsing Fed officials’ commentary before the June meeting looking for a clue on the timing of the next rate hike.
From a technical perspective the broader equity markets are consolidating from an overbought condition in April and the failure to take out the recent highs. The S&P 500 and the Dow Jones indexes are testing their respective 50-day moving averages. After facing heavy selling pressure in the technology stocks the NASDAQ Composite has moved below both its 50 and 200-day moving average. The Russell 2000 index has violated its 50-day moving average and is testing its 200-day moving average. 50-day and 200-day moving averages are used by many investors to determine short and long term trends.
Optimists can conclude that more consolidation is needed before the market will be able to hit new highs. Pessimists might conclude we are heading into the summer doldrums, typically a period of lower returns. The summer will host presidential political conventions. Things could get interesting.
The market will continue to throw us curveballs and investment challenges will remain. Against this backdrop our process-driven strategies will actively manage risk and adjust asset allocations as determined by our proprietary processes.
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. The Flex portion of the portfolios is in a transition zone. The portfolios are under the benchmark equity allocation at this time but above minimum equity allocation.
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 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 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. 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.