Weekly Commentary, 7/25/16 – 7/28/16
After a brief post-‘Brexit’ selloff, followed by a recovery in late June and early July, the market seems to have slipped into a holding pattern. With last month’s rise to all time highs, the S&P 500 Index appeared poised to push even higher before losing momentum, at least temporarily. In fact, the average daily price change last week was lower than in all but 4 weeks since the 1960s (1971, 1996, 2010, 2014). Thus, “the doldrums”, a nautical term from a time when sailing ships sometimes encountered areas of low pressure where winds were often calm to non-existent. During these times, the ships might float nearly motionless, sometimes for days or even weeks. Similarly, during the summer months, with many of the big decision makers not around to power its movements, the market seems to be drifting aimlessly.
Last week major U.S. equity indexes added small gains ranging from down -0.05% for the S&P 500, to up +0.49% for the S&P Mid Cap Index. The NASDAQ Composite fared better gaining +1.23% for the week. The Stoxx Europe 600 gained another +0.49%, while the Nikkei 225 lost -0.34%. The Shanghai Composite finished the week down another -1.06%
The market internals Stadion monitors have not changed much in this environment and are still supporting further price appreciation. When the markets drift sideways as they have been new signals are slow to form. We mentioned last week that the Federal Open Market Committee (FOMC) had a meeting and that it could provide impetus for a new move, but even the FOMC doesn’t seem to matter in the current environment.
When equities are moving in narrow ranges the natural question becomes, what comes next? Looking back at similar periods of low summer volatility, it is possible we won’t see any significant moves over the next few weeks. But as we’ve noted recently, these are unusual times. If we learned anything in the last year, it’s that the markets can break in either direction from range-bound conditions like these. Some say, “Never short a dull market”. What we say is, never attempt to predict, but always be prepared to react. For the time being we remain cautiously optimistic, yet always ready to adjust our positioning when market signals change.
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 S&P Mid Cap 400 Index, more commonly known as the S&P 400, is a stock market index from Standard & Poor's that serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence. 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 EURO STOXX 600 Index represents large, mid and small capitalization companies across 18 countries of the European region. 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 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. 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.