Weekly Commentary, 7/18/16 – 7/22/16
Last week we highlighted an acronym, FOMO, the “fear of missing out”. Another acronym making its way around Wall Street to help explain the recent equity rally is TINA: “there is no alternative.” With global interest rates near all-time lows, including $13 trillion of debt issued with negative interest rates, and investors now confident that global central banks intend to remain accommodative, some are saying there is no alternative but to buy equities. Frequently, equity market gyrations seem inexplicable. This time, TINA seems a reasonable rationalization for rising equity prices.
In a low volume (or, unspectacular) week, U.S. equities continued climbing a wall of worry to record highs. Major U.S. equity indexes added 0.29% to 0.61%. The NASDAQ Composite, which has been the laggard recently, tacked on 1.40% for the week. The Stoxx Europe 600 gained 0.71%. The Nikkei 225 added 0.78%. The Shanghai Composite finished the week in the red shedding 1.36%.
Market internals continue to support solid price action. The S&P 500 Index Cumulative Advance-Decline Line established another new high. 79% of S&P 500 stocks are trading above their 200-day moving average which is a recent high. It is encouraging to see the technology, healthcare and biotech sectors, which have been lagging recently, begin to outperform. Fundamentally the market looks good. Second quarter corporate earnings announcements are meeting expectations and improving U.S. economic data suggest the economy may be picking up steam.
Next week could be a bit more interesting as we enter the heart of Q2 reporting season and the Federal Open Market Committee (FOMC) meets and releases their official statement. Many pundits and commentators believe the Federal Reserve is laying the ground work to raise rates later in the year.
The market has had a fresh run of new highs over the past two weeks. What now? Fundamentals and technicals both point toward higher prices. However, at some point the market will need to consolidate the gains. A logical S&P 500 support level is 2135, the old market high. Stadion portfolios are currently positioned for higher prices but Stadion’s inherent defensive bias means we always monitor risk with built-in processes designed to reduce exposure and increase protection should conditions warrant.
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 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 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. 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.