Weekly Commentary, 6/13/16 – 6/17/16
The week began on a tragic note with the horrific shootings in Orlando. Stocks drifted lower through the balance of the week on polls pointing to a “leave” vote on the U.K. referendum to stay in the European Union. The Dow Jones Industrial Average finished down 1.06%. The S&P 500 Index closed 1.19% lower and the broader Russell 2000 Small Cap index lost 1.65%.
The U.S. fared better than the world’s other major exchanges. The Japanese Nikkei 225 Index fell 6% after the Bank of Japan dashed any hopes of additional monetary easing. The Europe 600 Index (STOXX) lost 2.14% with the growing possibility that the U.K. might vote on June 23 to leave the European Union (EU). There are countless uncertainties when it comes to the possible implications of a vote to exit the EU. What would the impact be on global growth and would other members of the EU consider an exit? On Tuesday, the German 10-year government bond dropped below 0.00% for the first time on record. Germany now joins a growing list of countries with negative interest rates as investors flock to safe haven assets.
Back in the U.S. the Federal Reserve Bank (Fed) concluded a two day meeting on Wednesday leaving short-term rates unchanged. Federal Reserve Chairwoman Janet Yellen cast doubt on a rate increases in the near future. At a press conference following the meeting Ms. Yellen stated “We are quite uncertain about where rates are heading in the near future.” New projections from the Fed see the fed-funds rate at 1.625% by the end of 2017 and 2.375% at the end of 2018, both lower than their projections in March. U.S. 10-yr notes traded to an intraday low of 1.51% closing the week at 1.62%.
Technically, the market lost ground. The S&P 500 closed at 2,071, below its 50-day moving average, with near term support in the 2040 area. The NASDAQ closed at 4,800, below its 200-day moving average approaching major support at 4,700. Consumer staples and utilities, the more defensive sectors, outperformed most other major sectors.
Next week will be critical for the markets. Results of the U.K. polls have been varying widely and more favorable polling could improve the sentiment for stocks. We suspect continued volatility as we move towards the June 23 vote. We will continue to monitor events as they unfold and adjust asset allocations as warranted.
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. With the recent weakness in the weight-of-the-evidence model, the Flex portion of the portfolios is partially invested in equity ETFs. The portfolios are overweight 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 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 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. 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 EURO STOXX 600 Index represents large, mid and small capitalization companies across 18 countries of the European region. 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.