Weekly Commentary, 10/31/16 to 11/4/16
Stocks finished in negative territory for the second week in a row and lower in nine consecutive daily sessions. The string of losses is the longest streak since 1980 and is making headlines in the press. Although it is a sensational headline, the nine day loss is small at slightly more than 3% for the S&P 500 Index over this period. According to Howard Silverblatt at S&P Dow Jones Indices there have been 298 days when the index has lost more in one day.
Positive earnings surprises took a back seat to election jitters this week. Tightening in the polls forced investors to weigh the contrasting results of a Clinton versus a Trump win. The angst led to broad market losses. The S&P 500 shed -1.90%. The Russell 2000 Index lost -2% and the NASDAQ fell -2.80%. Interest rates drifted lower from 1.84% to 1.78% on the 10-year U. S. Treasury note.
As expected, Wednesday the Federal Open Market Committee decided to leave interest rates unchanged but sent signals that the committee could move at their next meeting December 13-14. The statement dropped language used in previous statements regarding expectations projecting inflation “to remain low in the near term.” The Federal Reserve’s preferred measure of inflation, core personal consumption expenditures, rose 1.7% in the third quarter approaching their stated target of 2.00%. The statement went on to say the committee “judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress towards its objectives.”
Friday’s release of the monthly nonfarm payrolls should clear the way for the Fed to hike rates in December. Nonfarm payrolls rose 161,000 in October and the unemployment rate fell to -4.9%. The release included upward revisions to wages and the prior month’s payroll growth.
Technically, the market continues to worsen. The S&P 500 violated the key 2,120 support level, closed below the psychologically important level of 2100 and is now testing its 200-day moving average. Although the recent market losses have not been extreme the market ‘technicals’ continue the decline begun in mid-October. The combination of deteriorating prices and market technicals does not bode well for prices going forward. However, news headlines and swings in the election polls could move the markets in any direction at a rapid pace.
At Stadion we will not attempt to dissect the election and make a prediction on the outcome but will continue to follow our investment processes. Periods of high uncertainty and increasing volatility can highlight the need to include strategies that incorporate on going risk management.
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 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 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. 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 U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. The Sharpe ratio measures the excess return per unit of deviation, or risk. The core personal consumption expenditures index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices. 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.